We’ve raised the possibility Greece’s sovereign debt burden is far lower than the headline figures — and the potential significance of this — in previous posts. Now it’s time to dig in.
(The idea was brought to our attention by Paul Kazarian, whose Japonica Partners has a position in Greek government bonds and would stand to profit from a compression in risk premiums. His interest in the outcome doesn’t necessarily mean he’s wrong.) Read more
When sovereign debtors issue bonds, the “use of proceeds” clause tends to be mere boilerplate.
“General budgetary purposes” usually covers it — although bondholders (those who bother to read the contract) will sometimes just have to hope that means something like servicing existing debts, rather than servicing the president’s daughter’s limo.
Similarly, the “general corporate purposes” line in a state enterprise’s government-guaranteed debt will usually be taken to mean just that, and not something worryingly niche, like arming a small navy. (It happens.)
They’re sovereigns. You’re not supposed to be too insistent about what they do with the money.
Times have changed though. Or at least they have for Russia. Read more
Alphachat is available on Acast, iTunes and Stitcher. Read more
Alphachat is available on Acast, iTunes and Stitcher.
Going bust is painful. But when you are a country it is particularly awful.
While people and companies have recourse to established legal frameworks that govern their bankruptcies, struggling countries have to tackle debts in what is close to a legal limbo.
As a result, both countries and their creditors are uniquely vulnerable. The former have no formal bankruptcy protection that it can use for an orderly restructuring of its debts, but the latter have few ways to compel a stubborn state to heel (at least in the post-gunboat diplomacy era). The result is a delicate balance — and when it breaks down, it can lead to an unholy mess. Read more
You won’t find a certain Latin phrase anywhere on it. Still, just for the record, here’s evidence that Argentina did learn at least one thing from the pari passu saga.
Presenting the new pari passu clause, from the prospectus for the gargantuan $16.5bn bond which Argentina is issuing to pay off holdouts and place that saga behind it: Read more
What’s the biggest coupon you can get lending US dollars to an African government south of the Sahara these days?
Ghana’s bond due 2030 of course. It will pay 10.75 per cent starting from its first coupon date next month.
And what will investors get for agreeing to swap Mozambique’s government-guaranteed tuna debt for its own sovereign paper? Read more
When Zambia issued its first international bond, in 2012, investors could knock themselves out reading a 106-page prospectus of disclosure regarding the southern African sovereign’s finances.
It gives me greatest pleasure to announce that the 15-year pitched battle between the Republic of Argentina and Elliott Management, led by Paul E. Singer, is now well on its way to being resolved…
– Daniel Pollack, Special Master in the pari passu deal negotiations
Could it be? Is it over? Read more
By Rodrigo Olivares-Caminal, Professor in Banking and Finance Law at Queen Mary University of London and an expert and consultant in sovereign debt restructuring.
Charles Blitzer, an economist, former senior IMF staffer, and expert on sovereign debt management and restructuring, says that talks between Argentina and its holdouts should start with signing a non-disclosure agreement.
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Mitu Gulati and Bob Rasmussen — members of the law faculties of Duke University and the University of Southern California, respectively — argue that Puerto Rico has another route to restructuring its debts…
The federal courts have declared that Puerto Rico does not have the authority to enact an insolvency regime applicable to its public sector borrowers. Read more
After a long hiatus, a convoluted saga gets a new cast of characters.
Although has the basic plot changed very much? Read more
All those San Francisco meetings paid off.
Franklin Templeton and other private creditors will agree to swallow a writedown on their Ukrainian bonds. Cutting a fifth off bond principal, it’s much less than many expected. Bond prices were rallying hard at pixel time.
Then there is the issue of Moscow. Since Russia’s said no about restructuring its own Ukrainian bond. Read more
Another sovereign issuer started defaulting on its debt on Monday — treading a path well-worn by governments who run out of money.
This is Puerto Rico and the US muni market however, so the actual statement from its Government Development Bank, on missing a Public Finance Corporation bond payment, might make it appear as if things are different this time: Read more
Here is another very strange, and short, document. Click to read.
It’s an update to the Greek debt sustainability analysis by IMF staff — yes one of those analyses again — which was originally published just before Greece’s July 5th referendum. Read more
At length. Because haven’t you heard?
Germany is a hypocritical creditor.
It won’t give Greece the debt relief which it received itself in the 1950s.
Thomas Piketty said it. So it must be true: Read more
Here is an earnest, but very strange, document. Click to read.
It’s a Greek debt sustainability analysis by IMF staff. Yes, one of those analyses. A preliminary one, but in many ways the DSA to end all DSAs. Read more
This belief — that an implicit official sector guarantee has quietly settled over every sovereign debt instrument issued by every geopolitically significant country on the planet — is a fallacy. The moral hazard implications of allowing this idea to prosper are staggering. More importantly, the official sector lacks the resources to make good on such an implicit guarantee, even if it wanted to do so.
– Lee Buchheit, ‘Sovereign fragility’, 2014
Coming home to roost now though, isn’t it? Read more
She’s a little busy with Greece at the moment. But just under two weeks after Christine Lagarde read the IMF equivalent of the riot act to Ukraine’s biggest bondholders over its debt restructuring…
They’ve responded. See below for the full open letter from Ukraine’s creditor committee on Wednesday: Read more
The governments change, the debts change. The rhetoric, on the other hand…
In light of the Greek prime minister’s recent ‘humiliation’ speech and the rather heated reaction it’s had among official creditors (and private bondholders) – we thought we heard some historical echoes. So we took a quick look through the archives. Read more
It’s jargon-tastic and it’s come out of Washington DC late on a Friday, but do read this IMF statement on Ukraine’s debt restructuring. As Barnejek tweeted, it’s financial history in the making… Read more
On May 28, Ukraine will pay $88m in interest on its $2.25bn bond due 2022.
On June 20, it will also pay a $75m coupon on that $3bn bond owed to Russia.
Well, we say ‘will.’
This might get in the way first: Read more
Back in April, five leading owners of Ukrainian bonds formed a committee to negotiate a restructuring with their debtor – and avoid losing money on their approximately $10bn principal in the process.
Now count the names in this release on Monday… Read more
Are you an EM fund manager?
Do you live in London or New York?
Were you by any chance offered some of the $1.4bn of Bonar 2024 bonds issued by Argentina on Wednesday, bought by Deutsche Bank and BBVA on Thursday, and settling this Friday? Or maybe you’d like to buy these bonds in the near future.
Then congratulations. You might well also be buying yourself a ticket to the next exciting stage of the pari passu saga.
PS: this may now involve the holdouts personally hunting you down. Read more
Update: Seems we were right to regard this as curious…
Late on Thursday the IMF walked back on the idea the Russian bond is official debt, per Reuters: Read more
The Russia problem aside, Ukraine’s other big task in its $15bn debt restructuring will simply be to convince private bondholders that it’s a deal worth taking.
One way to do that is for bondholders to realise they are dealing with a government burdened with the costs of war and as it happens, increasingly absorbed in an intense lustration campaign.
But some of them (quite possibly one that lives in San Mateo, CA) could have holdings large enough to block a bondholder vote. So, even if Natalie Jaresko, the Ukrainian finance minister, does like to quote Margaret Thatcher about there being no alternative… the new bond terms will need to justify taking a massive haircut compared to holding out for full payment.
Another way to do it? Note how ripe for abuse the old bond terms are.
When Lee Buchheit, Ignacio Tirado and Mitu Gulati were looking deep within the innards of Cypriot government bonds just over two years ago — shortly before the climax of the island’s debt crisis — they found something exciting. Read more
All it took was 11 days — and one schtum Kremlin spokesman — to make people wonder recently just how strong and secure a ruler Vladimir Putin really is.
They might want to look inside his Ukrainian bonds next. Read more
Could there finally be a limit to just how far around the world the pari passu saga goes?
But for a longer answer, read on. Read more
Does money have value because the state says it’s money, or because the population trusts that it’s money?
It’s a great, perennial question. It’s also really not one Greece wants to find the answer to right now.
The question comes up reading yet another proposal for Greece to use a parallel currency so it can fight with its creditors without leaving the euro. So, coming fresh after Wolfgang Munchau’s appeal for Greek IOU issuance last week, Paul Mason has resuscitated “future tax coin”: Read more