Ukraine’s Dodgy Designations

In its recent debt reprofiling, Ukraine asserted that it had the unilateral right to “re-designate.” The context here is the operation of the aggregated collective action clause (CAC), which allows the debtor to conduct an aggregated vote across multiple series of bonds to see if a restructuring proposal gains the support of the entire group. Ukraine claimed that it had the contractual right, in its sole discretion, and after the votes were in, to decide which series of bonds to include in the restructuring. To be fair, its bond contracts did seem to allow this. More or less. But the contracts didn't explicitly confer this power, and it is a strange way to conduct a vote. Why allow an idea's proponent to count the votes before deciding which votes should count? In Ukraine's case, the reprofiling had wide creditor support, so perhaps it didn't matter all that much. But we wonder whether investors will come to regret allowing this assertion of a unilateral redesignation power to pass without objection. There will be other restructurings, where investors will be asked to make much bigger sacrifices, and where governments may just use the redesignation power as leverage. When that happens, we won't be surprised when the Ukraine example is trotted out as an informal precedent to justify this practice.

Producer: Leanna Doty