Clause and Effect

Abstract In a randomly collected sample of 175 bonds governed by English law, the authors recently found that about one quarter of emerging market sovereign bonds contain a curious feature: a short provision saying that ALL payments under the bond are subject in ALL cases, to ANY applicable fiscal or other laws. On its face, this would include fiscal or other laws enacted by the sovereign issuer itself. And if courts were to give the clause that reading, this could significantly affect how the issuing countries might approach any necessary restructuring of those instruments. They would, after all, have the power to facilitate the debt restructuring by passing domestic legislation; something that the Greek Parliament did in 2012 to facilitate the largest sovereign debt restructuring in history. This version of the clause appears in English law-governed bonds of countries like the Russian Federation, which has been in default for years, as well as in the Ukraine GDP Warrants, which went into default earlier this year.