Are CACs Unilateral Modification Clauses?

We have always understood the collective action clause (CAC) in a sovereign bond to allow the bond issuer to propose a modification to the bond, which will bind everyone if approved by the requisite proportion of holders. Typically the sovereign is proposing to restructure its debt. This is more or less what bonds governed by NY law say, but bonds governed by English law appear to allow bondholders to gang together to modify the bond without the issuer's consent. Can that be right? We don't really think so, but we don't see anything in the text of the standard CAC in English law bonds that requires issuer consent. Imagine a Euro area issuer is nearing crisis and holders of its local law debt decide to switch their bonds to, say, English law. Can they do this unilaterally? Maybe so.

Producer: Leanna Doty