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Full-Text Articles in Law
Targeted Subordination Of Official Sector Debt, Lee C. Buchheit, Mitu Gulati
Targeted Subordination Of Official Sector Debt, Lee C. Buchheit, Mitu Gulati
Faculty Scholarship
If Greece’s debt is unsustainable, and most observers (including the IMF) seem to think it is, the country’s only source of funding will continue to be official sector bailout loans. Languishing for a decade or more as a ward of the official sector is undesirable from all perspectives. The Greeks bridle under what they see as foreign imposed austerity; the taxpayers who fund the official sector loans to Greece balk at the prospect of shoveling good money after bad. The question then is how to facilitate Greece’s ability to tap the private capital markets at tolerable interest rates. The IMF’s …
A People’S History Of Collective Action Clauses, Mark C. Weidemaier, Mitu Gulati
A People’S History Of Collective Action Clauses, Mark C. Weidemaier, Mitu Gulati
Faculty Scholarship
For two decades, collective action clauses (CACs) have been part of the official-sector response to sovereign debt crisis, justified by claims that these clauses can help prevent bailouts and shift the burden of restructuring onto the private sector. Reform efforts in the 1990s and 2000s focused on CACs. So do efforts in the Eurozone today. CACs have even been suggested as the cure for the US municipal bond market. But bonds without CACs are still issued in major markets, so reformers feel obliged to explain why they know better. Over time, a narrative has emerged to justify pro-CAC reforms. It …
Lawyers: Gatekeepers Of The Sovereign Debt Market?, Michael Bradley, Irving De Lira Salvatierra, Mitu Gulati
Lawyers: Gatekeepers Of The Sovereign Debt Market?, Michael Bradley, Irving De Lira Salvatierra, Mitu Gulati
Faculty Scholarship
The claim that lawyers act as gatekeepers or certifiers in financial transactions is widely discussed in the legal literature. There has, however, been little empirical examination of the claim. We test the hypothesis that law firms have replaced investment banks as the gatekeepers of the market for sovereign debt. Our results suggest that hiring outside law firms sends a negative signal to the market regarding the pending issuance; a finding that is inconsistent with the thesis that outside law firms primarily play a certification role in the sovereign debt market.
Santa Anna And His Black Eagle: The Origins Of Pari Passu?, Benjamin Chabot, Mitu Gulati
Santa Anna And His Black Eagle: The Origins Of Pari Passu?, Benjamin Chabot, Mitu Gulati
Faculty Scholarship
One of the most debated issues in international finance is the meaning of the pari passu clause in sovereign bonds. The clause is ubiquitous; it is in almost every single foreign-law sovereign bond out there. Yet, almost no one seems to agree on its meaning. One way to cut the Gordian knot is to track down the origins of the clause. Modern lawyers may have simply copied the clause from the documents of their predecessors without understanding its meaning. But surely the people who first drafted the clause knew what it meant. Four enterprising students at Duke Law School may …
The Greek Debt Restructuring: An Autopsy, Jeromin Zettelmeyer, Christoph Trebesch, Mitu Gulati
The Greek Debt Restructuring: An Autopsy, Jeromin Zettelmeyer, Christoph Trebesch, Mitu Gulati
Faculty Scholarship
The Greek debt restructuring of 2012 stands out in the history of sovereign defaults. It achieved very large debt relief—over 50 percent of 2012 GDP—with minimal financial disruption, using a combination of new legal techniques, exceptionally large cash incentives, and official sector pressure on key creditors. But it did so at a cost. The timing and design of the restructuring left money on the table from the perspective of Greece, created a large risk for European taxpayers, and set precedents—particularly in its very generous treatment of holdout creditors—that are likely to make future debt restructurings in Europe more difficult.
Collective Action Clauses For The Eurozone, Michael Bradley, Mitu Gulati
Collective Action Clauses For The Eurozone, Michael Bradley, Mitu Gulati
Faculty Scholarship
One of the primary policy initiatives instituted in response to the Eurozone sovereign debt crisis is a requirement that all Eurozone sovereign bonds issued after January 1 2013 include provisions referred to as Collective Action Clauses or CACs. These CACs allow for a super-majority of creditors to impose restructuring terms on minority holdouts. This article assesses the likely effect of this proposal on the borrowing costs of sovereign debtors. Contrary to much of the literature, we find that the presence of CACs leads to a lower cost of capital, especially for below-investment grade bonds
Revisiting Sovereign Bankruptcy, Lee C. Buchheit, Anna Gelpern, Mitu Gulati, Ugo Panizza, Beatrice Weder Di Mauro, Jeromin Zettelmeyer
Revisiting Sovereign Bankruptcy, Lee C. Buchheit, Anna Gelpern, Mitu Gulati, Ugo Panizza, Beatrice Weder Di Mauro, Jeromin Zettelmeyer
Faculty Scholarship
Sovereign debt crises occur regularly and often violently. Yet there is no legally and politically recognized procedure for restructuring the debt of bankrupt sovereigns. Procedures of this type have been periodically debated, but so far been rejected, for two main reasons. First, countries have been reluctant to give up power to supranational rules or institutions, and creditors and debtors have felt that there were sufficient instruments for addressing debt crises at hoc. Second, fears that making debt easier to restructure would raise the costs and reduce the amounts of sovereign borrowing in many countries. This was perceived to be against …
How Markets Work: The Lawyer’S Version, Mitu Gulati, W. Mark C. Weidemaier
How Markets Work: The Lawyer’S Version, Mitu Gulati, W. Mark C. Weidemaier
Faculty Scholarship
In this article, we combine two sources of data to shed light on the nature of transactional legal work. The first consists of stories about contracts that circulate widely among elite transactional lawyers. Surprisingly, the stories portray lawyers as ineffective market actors who are uninterested in designing superior contracts, who follow rather than lead industry standards, and who depend on governments and other outside actors to spur innovation and correct mistakes. We juxtapose these stories against a dataset of sovereign bond contracts produced by these same lawyers. While the stories suggest that lawyers do not compete or design innovative contracts, …
Commitment Bonds, Michael B. Abramowicz
Commitment Bonds, Michael B. Abramowicz
GW Law Faculty Publications & Other Works
This Article introduces compensating commitment bonds, which make it more affordable for a government, entity, or individual to commit to some course of action. These bonds, like traditional government or corporate bonds, can generate revenue for committing parties. A bond seller makes a commitment and promises to pay a forfeit if the seller fails to meet the bond conditions. The bond buyer pays the seller to be contractually designated as the recipient of any amounts the bond seller forfeits. This approach has potential application in a range of legal situations. Governments and other parties may use such bonds to facilitate …
The Dynamics Of Contract Evolution, Mitu Gulati, Stephen J. Choi, Eric A. Posner
The Dynamics Of Contract Evolution, Mitu Gulati, Stephen J. Choi, Eric A. Posner
Faculty Scholarship
Contract scholarship has given little attention to the production process for contracts. The usual assumption is that the parties will construct the contract ex nihilo, choosing all the terms so that they will maximize the surplus from the contract. In fact, parties draft most contracts by slightly modifying the terms of contracts that they have used in the past, or that other parties have used in related transactions. A small literature on boilerplate recognizes this phenomenon, but little empirical work examines the process. This Article provides an empirical analysis by drawing on a data set of sovereign bonds. The authors …
Direct And Indirect U.S. Government Debt, Steven L. Schwarcz
Direct And Indirect U.S. Government Debt, Steven L. Schwarcz
Faculty Scholarship
No abstract provided.
Commitment Bonds, Michael B. Abramowicz, Ian Ayres
Commitment Bonds, Michael B. Abramowicz, Ian Ayres
GW Law Faculty Publications & Other Works
This Article introduces compensating commitment bonds, which make it more affordable for a government, entity, or individual to commit to some course of action. These bonds, like traditional government or corporate bonds, can generate revenue for committing parties. A bond seller makes a commitment and promises to pay a forfeit if the seller fails to meet the bond conditions. The bond buyer pays the seller to be contractually designated as the recipient of any amounts the bond seller forfeits. This approach has potential application in a range of legal situations. Governments and other parties may use such bonds to facilitate …
Political Risk And Sovereign Debt Contracts, Mitu Gulati, Stephen J. Choi, Eric A. Posner
Political Risk And Sovereign Debt Contracts, Mitu Gulati, Stephen J. Choi, Eric A. Posner
Faculty Scholarship
Default on sovereign debt is a form of political risk. Issuers and creditors have responded to this risk both by strengthening the terms in sovereign debt contracts that enable creditors to enforce their debts judicially and by creating terms that enable sovereigns to restructure their debts. These apparently contradictory approaches reflect attempts to solve an incomplete contracting problem in which debtors need to be forced to repay debts in good states of the world; debtors need to be granted partial relief from debt payments in bad states; debtors may attempt to exploit divisions among creditors in order to opportunistically reduce …
Foreword: The Three And A Half Minute Transaction: Boilerplate And The Limits Of Contract Design, Mitu Gulati, Robert E. Scott
Foreword: The Three And A Half Minute Transaction: Boilerplate And The Limits Of Contract Design, Mitu Gulati, Robert E. Scott
Faculty Scholarship
The Hofstra Law Review has organized an “Ideas” symposium around our book manuscript “The Three and a Half Minute Transaction” (see http://ssrn.com/abstract=1937900). The idea for this symposium came from a debate that occurred at a faculty workshop at the Hofstra Law School some months ago where we were presenting our book manuscript. The topics of conversation included the following: the future of the current big-law-firm model, what value lawyers add in commercial transactions that use boilerplate contracts, why (and whether) boilerplate contracts are so slow to change, why law firms do not generally have R&D departments, the resolution of the …