Clauses & Controversies

Restructuring Uncle Sam's Debt All together now (in a smarmy drawl): "Families must balance their budget, why not countries?" Okay, that's a stupid thing to say (although politicians love to say it). It's especially stupid to say about rich countries that borrow in their own currency. But this doesn't mean these countries can't or won't default, as the United States itself has demonstrated. We talk with Julia Mahoney and Ed Kitch (Virginia), whose recent article (link below) covers the history of U.S. debt default and argues provocatively that a debt restructuring might be needed, perhaps surprisingly soon. And no, the 14th Amendment doesn't prohibit this. Julia and Ed explain why. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3492085 Producer: Leanna Doty

Best Crisis Management in HISTORY! Felix Salmon (Axios; Slate Money) knows more about financial markets than pretty much anyone we know. He joins us to talk about the U.S. government's engagement (or lack thereof) with debt issues in emerging markets and with multilateral institutions like the IMF. Will things be different under a Biden administration? Also: what just happened with that lawsuit against Guatemala?

Trees. Wrong. Barking Up. Jeromin Zettelmeyer has done foundational research on the economics and the law of sovereign debt. We discuss the G-20's "Common Framework," recently released to lay out a mechanism for coordinating debt relief to poor nations. Jeromin explains why Mitu and Mark are critical of the wrong aspects of the Common Framework and highlights the significance of the G-20's announcement. Producer: Leanna Doty

A View From the Sell Side Our guest Siobhan Morden is one of the most respected and widely-read sell-side analysts in the sovereign debt markets. We ask Siobhan about the process of assessing country risk and for insight about what to expect given the continuing economic fallout of the pandemic. Producer: Leanna Doty

Yannis Manuelides, a renowned sovereign debt lawyer, discusses the reluctance of governments to use GDP-linked bonds. He compares drafting practices in London and New York and critiques the 'common framework' for handling the Covid-induced debt crisis. The podcast explores debt deferral complexities, the role of private sector incentives, and the challenges of restructuring mechanisms in the Eurozone.

Judgments 1, CACs 0 If a bondholder sues and gets a judgment before a sovereign can restructure its debt, does the bondholder escape the restructuring? If so, will countries like Venezuela--which can't restructure any time soon and is increasingly a target of litigation in U.S. courts--be left without restructuring tools? Federal courts guru Andy Hessick (UNC Law) patiently explains why a restructuring vote under a collective action clause has no effect on a judgment. But governments needn't worry. There are plenty of other tools at their disposal. Producer: Leanna Doty

Will Asking For Covid Assistance Cause a Ratings Downgrade? Earlier this year, the Official Sector put in place a debt relief program for the poorest nations so that they would be able to utilize their scarce resources to ameliorate the havoc being caused by the pandemic. Some countries, however, have been concerned that asking for assistance will cause a ratings downgrade. But would it? What if the country needs this assistance to put it on a better path to economic recovery? What factors go into a ratings determination? Do contract terms make a difference? On this episode, we ask our good friend, ratings guru Elena Duggar, to help us understand the answers to these questions. Producer: Leanna Doty

Pricing Those Pesky CACs Do the legal provisions in a bond affect its price? If law matters then, at least in an efficient market, one would think the answer would be yes. Weirdly, lawyers often scoff at this idea, even though they are implicitly suggesting their work does not matter. But the empirical question remains. There has been extensive research on the pricing impact of Collective Action Clauses (CACs), with conflicting findings. We talk to financial economists Elena Carletti, Paolo Colla, and Steven Ongena about their recent studies of CAC pricing with one of us. Link to recent paper below. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2817041 Producer: Leanna Doty

What Lies Ahead? Italy can borrow for free in the middle of a pandemic and one of the worst economic crises on record. What’s going on? Have massive infusions of central bank cash put us in a permanent state of easy money? Or are investors a bit too over-confident? We talk to Robin Wigglesworth, global finance guru and correspondent for the Financial Times, about what lies ahead in sovereign debt markets and about index funds and other key players who will shape the market in the coming years. Producer: Leanna Doty

What's Your Damage? When a sovereign defaults on its debt, what should investors recover in damages? It seems to us that the conventional answer to this question is just wrong. We think. Pretty sure, actually. Well, probably. Two contracts professors who study sovereign debt discuss how they don't understand contracts damages. In sovereign debt cases. Producer: Leanna Doty