Q&As

What are collective action clauses and why are they used in sovereign bond documentation?

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Published on LexisPSL on 06/05/2015

The following Banking & Finance Q&A provides comprehensive and up to date legal information covering:

  • What are collective action clauses and why are they used in sovereign bond documentation?
  • What are collective action clauses?
  • Use of CACs in non-sovereign bonds
  • Use of CACs in sovereign bonds
  • Mandatory eurozone CAC

What are collective action clauses and why are they used in sovereign bond documentation?

What are collective action clauses?

Collective action clauses (CACS) are provisions contained in the terms and conditions of debt securities which:

  1. allow a specified majority of holders of the securities to agree to a change in the terms of the securities proposed by the issuer, and

  2. make any change so agreed binding upon all holders of the securities, including any who oppose the proposed change

The main purpose of a CAC is to facilitate a rescheduling of the debt securities. If the issuer can agree rescheduled terms with the specified majority, the CAC will

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