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The Problem Of Holdout Creditors In Eurozone Sovereign Debt Restructuring, Mitu Gulati, Lee C. Buchheit, Ignacio Tirado
The Problem Of Holdout Creditors In Eurozone Sovereign Debt Restructuring, Mitu Gulati, Lee C. Buchheit, Ignacio Tirado
Faculty Scholarship
The Eurozone official sector has declared that the belated restructuring of Greek bonds held by private sector creditors in 2012 was a “unique and exceptional” event, never, ever to be repeated in any other Eurozone country. Maybe so. But if this assurance proves in time to be as fragile as the official sector’s prior pronouncements on the subject of “private sector involvement” in Eurozone sovereign debt problems, any future Eurozone debt restructuring will be surely plagued by the problem of non-participating creditors --- holdouts. Indeed, it is the undisguised fear of holdouts and the prospect of a messy, Argentine-style debt …
Restructuring A Sovereign Debtor’S Contingent Liabilities, Mitu Gulati, Lee C. Buchheit
Restructuring A Sovereign Debtor’S Contingent Liabilities, Mitu Gulati, Lee C. Buchheit
Faculty Scholarship
How should the contingent liabilities of a sovereign be treated in a general restructuring of the debts of that sovereign? This question has played only a minor role in past sovereign debt restructurings because the size of such contingent liabilities has in most cases been small. In recent years, however, slathering government guarantees on third party debt has become the tool of choice for many countries in their efforts to quell an incipient panic in their financial markets. Some of those sovereigns are now, or may soon be, in the position of needing to restructure their debts. Ignoring large contingent …
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
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, …
The Wonder-Clause, Anna Gelpern, Mitu Gulati
The Wonder-Clause, Anna Gelpern, Mitu Gulati
Faculty Scholarship
The Greek debt crisis prompted EU officials to embark on a radical reconstruction of the European sovereign debt markets. Prominently featured in this reconstruction was a set of contract provisions called Collective Action Clauses, or CACs. CACs are supposed to help governments and private creditors to renegotiate unsustainable debt contracts, and obviate the need for EU bailouts. But European sovereign debt contacts were already amenable to restructuring; adding CACs could make it harder. Why, then, promote CACs at all, and cast them in such a central role in the market reform initiative? Using interviews with participants in the initiative and …