What CACs Lack
Dec 8, 2003
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
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