As part of the Fund’s ongoing work on sovereign debt restructuring, in October 2014 the Executive Board endorsed the inclusion of key features of enhanced pari passu provisions and collective action clauses (CACs) in new international sovereign bonds.1 Specifically, the Executive Board endorsed the use of: (i) a modified pari passu clause that explicitly excludes the obligation to effect ratable payments and (ii) an enhanced CAC with a menu of voting procedures, including a “single-limb” voting procedure that enables bonds to be restructured on the basis of a single vote across all affected instruments, a two-limb aggregated voting procedure and a series-by-series voting procedure.

This paper reports on progress in inclusion of enhanced collective action clauses and modified pari passu clauses as of end-October 2018. The report finds that enhanced CACs have now become the market standard, with only a few issuers standing out from the market trend. Around 88 percent of international sovereign bonds (in aggregate principal amount) issued since October 2014 in the main jurisdictions of New York and England include such clauses. The modified pari passu clause continues to be incorporated as a package with the enhanced CACs, with few exceptions. In line with findings in previous reports, the inclusion of enhanced CACs does not seem to have an observable pricing effect, according to either primary or secondary market data. The outstanding stock of international sovereign bonds without enhanced CACs remains high, with about 39 percent of the outstanding stock including enhanced CACs.

The IMF Executive Board endorsed in October 2014 the inclusion of key features of enhanced pari passu provisions and collective action clauses (CACs) in new international sovereign bonds.1 Specifically, the Executive Board endorsed the use of (i) a modified pari passu provision that explicitly excludes the obligation to effect ratable payments, and (ii) an enhanced CAC with a menu of voting procedures, including a “single-limb” aggregated voting procedure that enables bonds to be restructured on the basis of a single vote across all affected instruments, a two-limb aggregated voting procedure, and a series-by-series voting procedure.2 Directors supported an active role for the IMF in promoting the inclusion of these clauses in international sovereign bonds.3 The IMFC and the G20 further called on the IMF to promote the use of such clauses and report on their inclusion. Since that time, the IMF has published periodic progress reports on inclusion of the enhanced clauses.4 These reports found that since the Executive Board’s endorsement, substantial progress had been made in incorporating the enhanced clauses, with approximately 85 percent of new international sovereign bond issuances since October 2014 (in nominal principal amount) including such clauses. The reports also found that there was no observable market impact on inclusion of the enhanced clauses. However, the reports noted that the outstanding stock without the enhanced clauses remained significant, with issuers showing little appetite for liability management exercises to accelerate the turnover. This paper provides a further update on the inclusion of the enhanced clauses and on the outstanding stock of international sovereign bonds as of September 30, 2017. Section II reports on the inclusion of these enhanced provisions, finding that the vast majority of issuers are including these clauses, with only a few countries standing out against the market trend. Section II also provides an update on the outstanding stock, indicating that while the percentage of the outstanding stock with the enhanced clauses is increasing, a significant percentage of the stock still does not and little action has been taken by issuers to increase the rate of turnover. Section III briefly reports on the use of different bond structures, and Section IV describes the staff’s ongoing outreach efforts and next steps.

endorsed in October 2014 the inclusion of key features of enhanced pari passu provisions and collective action clauses (CACs) in new international sovereign bonds. Specifically, the Executive Board endorsed the use of (i) a modified pari passu provision that explicitly excludes the obligation to effect ratable payments, and (ii) an enhanced CAC with a menu of voting procedures, including a “single-limb” aggregated voting procedure that enables bonds to be restructured on the basis of a single vote across all affected instruments, a two-limb aggregated voting procedure, and a series-by-series voting procedure. Directors supported an active role for the IMF in promoting the inclusion of these clauses in international sovereign bonds. The IMFC and the G20 further called on the IMF to promote the use of such clauses and report on their inclusion. In September 2015, the IMF published a progress report on the inclusion of the enhanced clauses in international sovereign bonds as of end-July 2015. The report found that since the Executive Board’s endorsement, substantial progress had been made in incorporating the enhanced clauses: 41 issuances, representing 60 percent of the nominal principal amount of total issuances, had included the enhanced clauses as of July 31, 2015. The 2015 paper also provided initial observations on the patterns of incorporation, the market impact of inclusion of the enhanced clauses, and an update on the outstanding stock of international sovereign bonds. This paper provides a further update on the inclusion of the enhanced clauses and on the outstanding stock of international sovereign bonds as of October 31, 2016. Section II reports on the inclusion of these enhanced provisions, finding that uptake of the clauses has continued, with only a small minority of new issuances not including them. Section III provides an update on the outstanding stock, which reveals that while an increasing percentage of the outstanding stock includes enhanced clauses, a significant percentage of the stock still does not. Section IV reports on the use of different bond structures, and Section V describes the staff’s ongoing outreach efforts. Section VI briefly reports on other recent developments relevant to the contractual approach to sovereign debt restructuring and Section VII concludes with next steps.

Re-imagining sovereign debt examines the extent to which sovereign debtors’ contractual obligations may be honoured where the socio-economic rights of their citizens face clear danger of non-realisation. It critiques the foundational legal paradigm that influences and shapes the substance of the sovereign debt regime. In doing this, the author employs legal theory to show the inadequacies of the regime in terms of its failure to embrace the dynamism of sovereign debt which he characterises as a debt with a complex mix of public-private elements, hybridity of norms and multiplicity of interests beyond the two-sided creditor-debtor matrix. By locating socio-economic rights in all critical phases of the regime, the author shows that the recurring circles of debt crises are linked to the continuing influence of the private law paradigm. The book offers a fresh perspective to re-imagine sovereign debt using insights from transnational legal theorists and advocates prioritising socio-economic rights considerations in debt contracting, restructuring and adjudication through a more concrete recognition of creditors’ responsibilities. Re-imagining sovereign debt will interest lawyers, policymakers, diplomats, scholars and researchers interested in the law, history and politics of sovereign debt.

The first two decades of the twenty-first century witnessed a series of large-scale sovereign defaults and debt restructurings, in which sovereigns struggled to negotiate with recalcitrant bondholders, particularly hedge funds. Also, the outbreak of the COVID-19 pandemic in 2020 heralded a bleak financial outlook for many developing and emerging market countries, requiring sovereign debt restructuring in times of great macroeconomic uncertainty. Given the absence of a multilateral mechanism for sovereign debt restructuring equivalent to domestic corporate bankruptcy system, however, defaulted sovereigns often suffer from holdout litigation wrought by bondholders. This book proposes ways in which such legal actions could be regulated without the undue expense of bondholders' remedies by exploring the mechanism of balancing bondholder protection and respect for sovereign debt restructuring at various stages of litigation and arbitration proceedings.