Transactional aspects of sovereign debt restructuring
Produced in partnership with Rodrigo Olivares-Caminal, Professor in Banking and Finance Law at Queen Mary University of London and Principal of Pari Passu Consulting Ltd
Transactional aspects of sovereign debt restructuring

The following Restructuring & Insolvency practice note produced in partnership with Rodrigo Olivares-Caminal, Professor in Banking and Finance Law at Queen Mary University of London and Principal of Pari Passu Consulting Ltd provides comprehensive and up to date legal information covering:

  • Transactional aspects of sovereign debt restructuring
  • Techniques used to facilitate debt restructuring
  • Concluding remarks

Sovereign debt restructuring techniques

The amount of accumulated debt and its progressive increase have led to repayment problems and, in some cases, default. Thus, as countries amass unsustainable debt burdens (ie when the ratio of debt to gross domestic product rises to such an extent that the application of policies cannot reverse the situation), they have an increasing need to restructure their sovereign debt.

Broadly speaking, sovereign debt restructuring can be understood as the technique used by sovereign states to prevent or resolve financial and economic crises and to achieve debt sustainability levels. Most sovereign debt is documented by means of bond issuances (either domestic or international). Multilateral debt is not restructured (at best, rolled-over) and bilateral debt is usually rescheduled or restructured under the aegis of the Paris Club. Sovereign debt restructuring has two aspects: procedural and substantial. While the procedural aspect focuses on the way in which the restructuring should be performed (eg via the use of collective action clauses (CACs) or an exchange offer, sometimes enhanced by the use of other techniques), the substantial aspect involves the actual restructuring of debt, which is characterized by rescheduling amortization schedules as well as the possibility of reducing interest rates and/or principal by means of a post-default action.

Another available option is a debt reprofiling:— a voluntarily rescheduling of maturities through the use of CACs or an

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