Sovereign Sustainability Linked Bonds: What’s Going On?

The newest product on the sovereign scene is the sustainability linked bond. The product is potentially exciting because, on its face, it seems to remedy some of the incentive problems embedded in the more commonly used “use of proceeds” green bonds. Chile and Uruguay have issued slbs with considerable fanfare. But these are two strong issuers with robust commitments to climate change. The question we are interested in is whether these instruments are providing issuers with incentives to do more for climate change than they would otherwise do. Our guest, Ignacio Lagos, of Cleary Gottlieb, is one of the young stars of the sovereign debt field and talks to us about these deals. And since we had Ignacio with us, we seized the opportunity to also try to understand a bit more about the intriguing Hamilton Bank v. Sri Lanka case and that Registered Holder/Beneficial Owner stuff.

Producer: Leanna Doty

Venezuelan Debt: The CITGO Auction, Statute of Limitations, and Other Enforcement Matters

It’s a busy time for Venezuela’s creditors. The auction process is starting for the sale of Venezuela’s ownership interest in US-based refiner CITGO. The six year statute of limitations on bond claims is coming up, and both the Maduro government and the National Assembly are trying to head off a new wave of lawsuits by giving assurances that, if bondholders hold fire, the country won’t later raise the statute of limitations as a defense. Meanwhile, although a comprehensive debt restructuring would seem to be in everyone’s best interests, the ongoing US sanctions regime continues to make that impossible. Steven Bodzin of REDD Intelligence is one of the most incisive and knowledgeable observers of what’s going on in Venezuela. He joins us to help figure out the current state of play.

Producer: Leanna Doty

Chasing Payment on Old Cuban Debt

We have a great fondness on this podcast for unpaid historical debts and the attempts to litigate these. One such story is that of Cuban debts. Our guest is Rebecca Burton of Linklaters (London), who joins us to talk about the saga of CRF v. Banco Nacional de Cuba and the 2023 ruling out of the High Court in London. Among the key questions here was whether in fact CRF, a hedge fund that had consolidated a bunch of old Cuban debts, had in fact validly received authorization to be able to litigate against the Cuban state.

Producer: Leanna Doty

Unpacking the Argentine GDP Warrants Case

In 2005 and 2010, Argentina issued GDP-linked warrants as a sweetener to investors participating in its debt restructurings. At the time, the warrants didn’t seem so sweet. Holders assigned them little value, and most got rid of the warrants for pennies on the dollar. But in April, in a lawsuit brought by hedge funds that had bought the warrants on the cheap, an English judge ruled that Argentina had dramatically underpaid on the warrants, adding nearly 1.5 billion to the amount the country owes to foreign creditors. Our guests this episode are Tim Dodsworth, Maggie Hemsworth, and Severine Saintier, hosts of the fabulous Unpacking Contract Law podcast, who help us understand the intricacies of the case.

Producer: Leanna Doty

Is a Diaspora Bond a Loan or a Gift?

Contract law distinguishes contracts from promises to make a gift. Contracts are enforceable; gift promises are not. Theories supporting this distinction note that gift promises often are made in relational and non-market settings where reputational and other enforcement mechanisms work well, and where legal enforcement is less needed and might even be disruptive. Yet a literature in economic sociology shows a much blurrier boundary between gift and market transactions. One context in which this is so involves diaspora bonds issued by sovereign states. Dan Lainer-Vos (USC) joins us to talk about the contrasting experience of issuing diaspora bonds in Ireland and Israel, the subject of his terrific book, “Sinews of the Nation."

Producer: Leanna Doty

Hamilton Bank Redux

We have talked before about the lawsuit by Hamilton Bank against Sri Lanka, noting that Hamilton Bank is trying to avoid the effect of a restructuring. Once it gets a judgment, it will have a claim to be paid in full despite any subsequent modification of the bond. Sri Lanka seems to know this and has been raising plausible but weak legal arguments in an apparent attempt to delay the case. Now the government has outright asked the court to stay the lawsuit (though without explicitly saying what it is concerned about). We are skeptical the judge will grant an outright stay, but perhaps there is room for a little foot dragging...?

Producer: Leanna Doty

The New Not Normal

Felix Salmon, the OG of sovereign debt journalism joins us for our final episode of the season. We talk to Felix about his forthcoming book, The Phoenix Economy: Work, Life, and Money in the New Not Normal. The past three years of pandemic life have changed things around the world. Felix asks what this new “not normal” is and how it might impact what is coming next. Our particular focus, of course, is on what Felix thinks is in store for us on the sovereign debt front. And there is a lot to talk about: inflation fears, rising interest rates and China, China, China.

Producer: Leanna Doty

In a Bad State

The world of sovereign debt research has long given short shrift to insights that might be gained from the study of sub sovereign debt. In this episode, we talk to David Schleicher of Yale Law about his new book "In a Bad State" about the federal government's responses to various local debt crises over the past two centuries. Turns out that there are lots of lessons to be learned from the fascinating world of US state and muni debt.

Producer: Leanna Doty

Ukraine's Victory in the UK Supreme Court

More than three years after hearing argument, the U.K. Supreme Court finally handed down a decision in Russia's $3 billion bond dispute with Ukraine. The dispute probably shouldn't be in a domestic court at all (functionally, it is a dispute over a bilateral loan between sovereign states). But that's where it is, and the U.K. Supreme Court ruled in favor of Ukraine's duress defense, which now can go to trial. Our guest, Nate Oman (William and Mary) is a guru of contract law (and many other things). Nate helps us think through Ukraine's duress argument, the U.K. Supreme Court's rulings about the borrowing capacity and authority of states and their officials, and how the law of restitution fits into all of this.

Producer: Leanna Doty

Sri Lanka’s Litigation Risk: Yet Another Problem With the Slow Pace of Restructurings

A while back, Sri Lanka was sued by an investor, Hamilton Bank. Early on, the lawsuit just seemed strange. Hamilton Bank’s initial claim for violation of the pari passu clause was a clear loser. Sri Lanka then raised a bizarre defense—that only the bond’s registered holder could sue. The lawsuit now involves an ordinary claim for unpaid principal. What’s going on? It seems the fight is about whether Hamilton Bank gets to escape a debt restructuring. A bond contract’s restructuring mechanism can’t affect a creditor who holds a claim based on a court judgment. So if Hamilton Bank gets its judgment first, it can demand payment in full. The broader lesson for the official sector should be clear. All these delays in getting official sector participation sorted out give private creditors time to opt out of a debt restructuring. If the goal is equal treatment across creditor types, maybe hurry it up a bit?

Producer: Leanna Doty