Collective action clauses: latest developments

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Page 12

In September 2002, a Group of 10 working group proposed a set of clauses, based on English law, that reflect the principles of fostering early dialogue, ensuring effective recontract, and minimizing litigation by minority creditors.

In early 2003, the group published its work on a set of model clauses designed to illustrate how these recommendations could be implemented. A group of private sector capital trading associations also published proposals for developing model clauses.

There have also been a number of steps in both mature and emerging markets on the use of CACs. In September 2002, European Union (EU) finance ministers stated that, beginning in June 2003, their member countries committed to issuing bonds in foreign jurisdictions with CACs that reflect the recommendations of the Group of 10 working group on contractual clauses. Italy has already launched such bonds. Although these bonds represent a small part of the overall bonds issued by EU countries, the EU represents a sizable portion of the global bond market and, thus, could influence market practice in the jurisdictions of New York and Germany, which traditionally have not included majority restructuring provisions.

At the end of 2002, international sovereign bonds with CACs issued by emerging markets amounted to about 30 percent of total sovereign bonds issued by these markets.

In March and April 2003,Mexico twice issued bonds governed by New York law that included majority restructuring and majority enforcement provisions. (Lebanon (2000), Qatar (2000), and Egypt (2001) had also issued bonds with majority...