Some New York lawmakers are planning legislation designed to blunt hedge funds’ ability to resist sovereign-debt restructurings, while easing financial settlements for government borrowers in distress.
New York state Sen. Gustavo Rivera and Assemblywoman Maritza Davila, both Democrats, plan to introduce legislation as soon as this week to allow a supermajority of a nation’s creditors to amend or restructure its debt contracts and bind any dissenters that could otherwise hold out.
Many sovereign bonds in Latin America, Africa, and other emerging markets contain collective-action clauses that require all creditors to honor agreements that a majority of them make with the borrower. But others lack such mechanisms, leaving no ready way for settlements made with majority support to become binding on all members of a creditor class.
A risk of the legislation is that investors would sue to challenge it because it could retroactively change certain contracts already in place. Changing contract rights can be justified under certain circumstances, if doing so advances a compelling state interest.
Author(s): Alexander Gladstone
Publication Date: 9 February 2021
Publication Site: Wall Street Journal