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Setting the Standard

Jun 1, 2003

Mexico comforts investors by being the first sovereign to put collective action clauses in a global bond. Whether the move will advance debate over sovereign debt restructurings remains to be seen.

This February, Mexico became the first emerging market issuer to sell a new kind of flexible bond that supporters say addresses many of the weaknesses of old-fashioned bonds. It also helped head off attempts by the International Monetary Fund to impose a formal, US-style bankruptcy code for overextended sovereigns. Judging by its performance, investors appear comfortable with the new bond, even though it weakens their rights as creditors.Mexico issued the $1 billion, 12-year global bond on February 26 and the spread had tightened by 61.5 basis points two months later. On April 21, the bond traded at a bid price of 100.8 and yielded 6.49%.Goldman Sachs and JP Morgan, joint book runners, launched the bond at a spread of 312.5 basis points with a 6.918% yield to maturity.

The bond comes equipped with socalled collective...

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