What CACs Lack
Heralded as a breakthrough in the sovereign debt
restructuring debate, agreements between debtors and creditors
still need fine-tuning.
Mexico has issued five bonds this year featuring clauses
intended to help coordinate bondholders demands in the
event of a debt restructuring. Mexico was the first borrower to
use these so-called collective action clauses (CACs) when it
sold a $1 billion global bond in March led by JP Morgan and
Goldman Sachs. At the time, the issue was welcomed with great
fanfare for advancing the debate over improving the sovereign
debt restructuring process - and for burying an attempt by
the International Monetary Fund to create a sovereign debt
restructuring mechanism (SDRM), an international bankruptcy
court for governments.
At first, Mexican authorities were wary about collective
action clauses. Mexico is one of Latin Americas three
investment grade issuers and although the risk of default is
remote, government officials were convinced that markets would
surely demand a premium for the new-style bonds. We were
reluctant initially to engage in [CACs], says Mexican
Central Bank President Guillermo...
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