RECENT DEVELOPMENTS AND FUTURE TRENDS IN MULTI-CLAIMANT PROCEEDINGS: PARTICULARLY USEFUL FOR SOVEREIGN DEBT INVESTORS?
The 2008 global financial crisis saw only three states default on their debts. This year alone, we have already seen six – Argentina, Belize, Ecuador, Lebanon, Suriname and Zambia – and it looks likely that more will follow. Although the coronavirus (COVID-19) pandemic cannot be wholly to blame for the rising number of states struggling to meet their debt obligations, it has undoubtedly been a major contributing factor.
It follows that many holders of sovereign bonds will currently be taking a long, hard look at their bond documents and exploring the potential legal avenues available to them. Where, as is often the case, the relevant bonds are not held via a trustee, it will be up to the individual bondholders to enforce their rights against the defaulting sovereign.
Compared to a decade ago, the pool of creditors holding sovereign debt is also broader and more fragmented. Traditionally, it was leading Western banks that were heavily invested in sovereign bonds. Now, however, the field of bondholders is much more diverse, with fund managers from around the globe counting sovereign bonds as part of their portfolios. This increase in the number and diversity of sovereign debt investors, coupled with the need for individual enforcement action described above, gives rise to obvious practical difficulties.
Jan-Mar 2021 issue
Weil, Gotshal & Manges (London) LLP