33:
653:
being asked to accept substantial debt and debt service reduction. However, it is unclear given the special circumstances of the Elliot case whether it will be broadly applicable to holdouts in other restructurings. The new
Argentine government elected in late 2015 gave indications of its willingness to negotiate with the set of thousands of holdout creditors. The Argentine situation has increased awareness of the utility of Collective Action Clauses in preventing or reducing holdout complications in debt restructuring.
464:, or CACs. In some jurisdictions, CACs or their equivalents are required under local law, but this is not a universal practice. CACs can represent additional borrowing costs for lenders while conversely, borrowers may seek lower debt costs without CAC protection but this exposes them to holdout conditions and potential damaging and expensive litigation which in the case of post-2001 Argentina essentially locked that country out of access to conventional international financing.
640:. In October 2013 the Supreme Court affirmed the decision without comment. A second decision of the 2nd Circuit which prohibits payments to creditors who did accept the swap if holdouts are not paid was on appeal to the full panel as of October 2013. This case may also be appealed to the Supreme Court. Enforcement of the decisions is stayed pending a final Supreme Court decision. Courts in Belgium, France, and Germany have backed Argentina on the basis of the
648:
is U.S. courts prompted
Argentine officials to propose placing the restructured bonds in question under Argentine law, while concurrently announcing a renewed bond swap offer. However, court decisions outside the US had no bearing on Argentina's debt obligations, since Argentina had sold their debt
652:
The possibility that holdout creditors can attach future payments on restructured debt and receive better treatment than cooperating creditors distorts incentives and can derail efforts for a cooperative restructuring. It is likely to be of particular importance in cases in which the creditors are
535:
in the sovereign's own country (like banks, insurance companies and pension funds). Restructuring those instruments will therefore undermine the health of the domestic financial system. Even if countries are able to reduce significantly their costs of debt service, the same amount might need to be
467:
The "holdouts" gamble that the restructuring will take place despite the lack of their consent, potentially leading to full repayment of their bonds, while other bondholders receive reduced payments according to the terms of the restructuring. If the restructuring does not take place, they gain
456:
in an attempt to restructure debt held by existing bond holders. Such exchange offers typically require the consent of holders of some minimum portion of the total outstanding debt, often in excess of 90%, because, unless the terms of the bond provide otherwise, non-consenting bondholders will
474:
Where bondholders are widely dispersed, as is often the case, it can be difficult to contact many holders. Further, many holders of small amounts of bonds have little incentive to invest the time and energy in evaluating the terms of the exchange offer. These factors represent substantial
457:
retain their legal right to demand repayment of their bonds at par (the full face amount). Bondholders who withhold their consent and retain their right to seek the full repayment of original bonds, may disrupt the restructuring process, creating a situation known as the holdout problem.
625:. Bondholders that accepted the 2005 swap (two out of three did so, while accepting only about one-third of the bond value in the restructuring) saw the severely reduced value of their bonds rise 90% by 2012, and these continued to rise strongly during 2013.
583:
Assisting the beneficiary member state in any ESM-approved restructuring of its debt by deflating the expectations of prospective holdouts that they will be able to extract a preferential recovery through the pursuit of legal remedies after the restructuring
579:
Ensuring that the financial support being provided by the ESM to one of its members is not diverted to the repayment of an existing debt obligation of that member that was eligible to participate in a debt restructuring but declined to do
499:
said: “we will show that
Europeans pay their debt”. Sarkozy was aiming at declining bond yields with his statement, but showed implicitly that countries want to avoid sovereign debt restructurings for reasons of their own national pride.
817:
519:) the effect of complex economic relationships could possibly lead to a conflagration. A debt restructuring of numerous countries or one great country might destabilize the global banking industry.
575:
in financial distress. In case of an ESM-approved sovereign debt restructuring, the
Holdout problem might play a significant role. Following amendments to the ESM could reduce this problem:
734:
636:, 12-1494, determined that holdouts should be repaid the full face value, but without the losses taken by those who had accepted the 2005 and 2010 swaps at a 70%-75%
879:
825:
558:
and attachment threat to the debtor, e.g. Argentina’s decade-long legal fight with thousands of holders of the
Argentine bonds that went into default in 2001.
629:
551:
If holdouts are subsequently paid in full, it makes the participating creditors look deprived and this leads in the next restructuring to even more holdouts.
460:
The contractual terms for obligating all bondholders to accept a restructuring approved by some supermajority is typically spelled out in what are known as
471:
The claims of the holdouts may be insignificant enough, and bothersome enough, that the issuer may satisfy them in whole simply not to be bothered.
468:
nothing, but holdouts may initiate damaging litigation that results in extremely high costs in direct and indirect economic injury to the debtor.
491:
Governments fear damages of their status as an advanced economy, which could lead to increasing sovereign bond yields. As an example, during the
857:
755:
700:
Lee C. Buchheit, G. Mitu Gulati, Ignacio Tirado (2013): The
Problem of Holdout Creditors in Eurozone Sovereign Debt Restructurings, p. 8-9
691:
Lee C. Buchheit, G. Mitu Gulati, Ignacio Tirado (2013): The
Problem of Holdout Creditors in Eurozone Sovereign Debt Restructurings, p. 4-5
792:
591:
for the recipient state to hold its assets and conduct its financial affairs without fear of harassment by holdout creditors
423:
315:
887:
310:
32:
335:
483:
If countries face the danger of default, additional complications might occur and increase the
Holdout problem:
330:
325:
839:
622:
568:
715:
913:
667:
548:
If there are enough of them, the financial predicates underlying the entire restructuring may be undone.
109:
928:
461:
416:
305:
220:
99:
142:
904:
532:
300:
503:
Sovereign debt restructuring could be tantamount to an admission of emerging market status.
358:
255:
64:
8:
409:
910:
662:
340:
283:
137:
42:
24:
637:
449:
390:
385:
375:
370:
365:
203:
157:
152:
104:
94:
82:
645:
528:
496:
492:
395:
295:
270:
250:
238:
225:
215:
180:
132:
773:
512:
453:
445:
380:
345:
290:
185:
175:
147:
54:
554:
If holdouts are not paid after the restructuring closes, they pose an ongoing
922:
875:
672:
544:
Creditors left behind in a restructuring could lead to following problems:
89:
522:
245:
114:
818:"A Belgian court ruled in favor of Argentina and against a vulture fund"
641:
555:
265:
260:
190:
618:
59:
840:"France to back legal argument in Argentina case against creditors"
588:
572:
516:
49:
478:
437:
320:
571:(ESM) has been installed in order to help out countries of the
858:"German court rules in Argentina favour against Vulture Funds"
911:
Proposals for a sovereign debt restructuring mechanism (SDRM)
210:
69:
716:"What Argentina's fight with holdout creditors is all about"
606:
605:
Successful litigations were undertaken by some holdouts in
793:"Argentina Rejected by U.S. Court in Bond Payment Appeal"
621:
and holdouts has been ongoing since at least the 2005
523:
Relationship between sovereign debt and private sector
475:
difficulties in obtaining the minimum consent levels.
527:
In the majority of countries, a substantial part of
920:
756:"Argentina offers new swap in pragmatic Plan B"
562:
479:Holdout problem in sovereign debt restructuring
784:
417:
874:
905:The problem of sovereign debt restructuring
774:"Argentina loses $ 1.3bn debt court appeal"
790:
735:"Billionaire Hedge Funds Snub 90% Returns"
424:
410:
880:"Elliott vs Argentina: It's not over yet"
710:
708:
706:
732:
921:
703:
750:
748:
316:Residential mortgage-backed security
311:Commercial mortgage-backed security
13:
595:
452:or nears default, and launches an
336:Collateralized mortgage obligation
14:
940:
898:
745:
536:spent in bank recapitalizations.
486:
31:
868:
850:
824:. July 11, 2013. Archived from
587:Providing a safe harbor in the
832:
810:
791:Greg Stohr (October 7, 2013).
766:
726:
694:
685:
539:
331:Collateralized fund obligation
326:Collateralized debt obligation
1:
678:
644:clause, however. The lack of
221:Initial public offering (IPO)
110:Over-the-counter market (OTC)
623:Argentine debt restructuring
612:
569:European Stability Mechanism
563:European Stability Mechanism
506:
495:the former French president
16:Economic issue of securities
7:
914:International Monetary Fund
668:Troubled Debt Restructuring
656:
10:
945:
617:A similar dispute between
256:Exchange-traded fund (ETF)
462:Collective Action Clauses
634:Argentina v. NML Capital
531:is likely to be held by
306:Mortgage-backed security
907:(PDF) by Kentaro Tamura
600:
100:Foreign exchange market
828:on September 28, 2013.
533:financial institutions
143:Inflation-indexed bond
301:Asset-backed security
722:. February 22, 2013.
890:on August 23, 2013.
878:(August 23, 2013).
862:Buenos Aires Herald
780:. August 25, 2013.
762:. August 27, 2013.
663:Debt restructuring
341:Credit-linked note
284:Structured finance
138:Floating rate note
434:
433:
391:Credit derivative
204:Equities (stocks)
936:
892:
891:
886:. Archived from
872:
866:
865:
864:. July 11, 2013.
854:
848:
847:
846:. July 26, 2013.
836:
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743:
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730:
724:
723:
712:
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698:
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689:
426:
419:
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239:Investment funds
158:Commercial paper
153:Zero-coupon bond
105:Futures exchange
95:Commodity market
35:
21:
20:
944:
943:
939:
938:
937:
935:
934:
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929:Bonds (finance)
919:
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746:
731:
727:
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699:
695:
690:
686:
681:
659:
646:legal certainty
628:An August 2013
615:
603:
598:
596:Recent examples
565:
542:
529:sovereign bonds
525:
513:currency unions
509:
497:Nicolas Sarkozy
493:Eurozone crisis
489:
481:
442:holdout problem
430:
401:
400:
396:Hybrid security
361:
351:
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296:Agency security
286:
276:
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271:Segregated fund
251:Closed-end fund
241:
231:
230:
206:
196:
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181:Government bond
171:
170:Bonds by issuer
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162:
133:Fixed rate bond
128:
127:Bonds by coupon
120:
119:
85:
75:
74:
45:
17:
12:
11:
5:
942:
932:
931:
917:
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899:External links
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867:
849:
831:
809:
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765:
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739:Bloomberg News
725:
702:
693:
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677:
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658:
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649:under US law.
614:
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581:
564:
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552:
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541:
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487:National pride
485:
480:
477:
454:exchange offer
444:occurs when a
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291:Securitization
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797:Bloomberg L.P
794:
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760:Latin Finance
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736:
733:Drew Benson.
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630:appeals court
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515:(such as the
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19:
888:the original
883:
876:Felix Salmon
870:
861:
852:
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834:
826:the original
821:
812:
800:. Retrieved
796:
786:
777:
768:
759:
738:
728:
719:
696:
687:
673:Vulture fund
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441:
435:
90:Stock market
18:
642:equal terms
540:Feasibility
359:Derivatives
246:Mutual fund
115:Spot market
802:October 8,
679:References
632:ruling in
556:litigation
266:Index fund
261:Hedge fund
191:Pfandbrief
65:Derivative
43:Securities
25:Securities
619:Argentina
613:Argentina
507:Contagion
60:Debenture
923:Category
657:See also
638:discount
609:(1996).
589:Eurozone
573:Eurozone
517:Eurozone
50:Banknote
884:Reuters
844:Reuters
720:Reuters
450:default
438:finance
386:Warrant
371:Futures
366:Forward
321:Tranche
83:Markets
584:closes
376:Option
822:Telam
216:Share
211:Stock
70:Stock
804:2013
607:Peru
601:Peru
567:The
446:bond
440:, a
381:Swap
55:Bond
778:BBC
511:In
436:In
925::
882:.
860:.
842:.
820:.
795:.
776:.
758:.
747:^
737:.
718:.
705:^
580:so
806:.
741:.
425:e
418:t
411:v
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