LONDON: The main players behind the global sovereign debt market announced new guidelines yesterday to reduce the risk that an Argentine-style deadlock by a small number of bondholders could occur again.
A key change concerns collective action by bondholders in the event of default by a country, and clearer application of an existing “pari passu” clause meaning that all parties should be treated in the same way.
The International Capital Market Association, which issued the new principles for government bonds, said they were “intended to facilitate future sovereign debt restructurings”.
The case of Argentina had generated “considerable” uncertainty over any future debt restructurings, it said.
This body, ICMA, based in Zurich brings together the main banks, investors and issuers of government debt around the world.
This is a response to complex litigation over an old agreement when 93 percent of bondholders abandoned about 70 percent of debt owed when Argentina defaulted after an economic crisis in 2001.
That deal was rejected by seven percent of the bondholders who demanded better terms, and this dispute has come to a head in recent months, consequently putting a new shadow of default over the country.
Some speculative funds led by NML Capital and Aurelius Management, holding less than one percent of the amount due, took their case to US courts, winning their argument, putting Argentina in a situation of partial default.
The purpose of the new guidelines which are not compulsory, and which would affect new bond issues and not bonds issued in the past, is to prevent a small number of bondholders from blocking the application of an agreement on debt restructuring between an issuer unable to repay and most of its creditors.
AFP
