Sri Lanka should have a strategic approach to tackle its distressed sovereign debt. They could make use of aggregated collective action clauses to involve domestic currency debt and law bonds. It is the same strategy introduced in 2014. Elliott Management won a judgment in New York saying its holdings of Argentina. Here, the bond should fully pay before any restructure bonds are into service.
The aforementioned strategy design could prevent holdout from succeeding in the future. This clause could allow debtors to hold votes across a series of bonds rather than individual issues. Thus it is harder for holdouts to prevent their distressed bonds in single restructured issues. However, in Argentina’s 2020 restructuring, investors rejected some touted aggregation plans.
It would allow the country to change the ability to vote in each poll. Gradually, it enabled a restructuring to meet necessary threshold and gain full consent. The deal was done consensually. It dropped the neet to invoke Pac-Man measures. Currently, a law professor at the University of Virginia, Mitu Gulati and Mark Weidemaier at the University of North Carolina argue the tactics.
The strategy could include domestic debt and votes across a series of foreign currency bonds issued of a sovereign. This way they could get the proposal easier. Firstly, restructuring the local law debt must finish. Then it adds a provision similar to the aggregated CACs provision in the foreign law debt.
Gulati and Weidemaier in their paper evoked that the new CACs have a huge exploit built in. Country issuers like Sri Lanka with large local-law debt stock might face more leverage than expected. A lawyer in sovereign restructuring said that he is in favor of including local law-governed bonds in the aggregated CACs. He thinks that the International Capital Market Association terms cannot prevent the situation.
