02 November 2022

ICMA publishes new majority voting clauses for commercial loans to sovereign borrowers to facilitate sovereign debt restructuring

The working group, which included ICMA, elicited private sector input and designed the new terms for inclusion in sovereign loan agreements in order to facilitate more efficient and effective sovereign debt restructurings.

The International Capital Market Association (ICMA) has today published new majority voting specimen clauses for inclusion in commercial loan agreements’ payment terms for sovereign borrowers which have been produced by an HM Treasury-led public-private sector working group established by the United Kingdom during its time as chair of the G7 and convened with the support of the Institute of International Finance (“IIF”). The working group, which included ICMA, elicited private sector input and designed the new terms for inclusion in sovereign loan agreements in order to facilitate more efficient and effective sovereign debt restructurings. The use of these new terms in private sector loans to government borrowers is intended to facilitate less time consuming and disruptive debt restructurings by mitigating holdout creditor strategies and result in greater financial stability.

Leland Goss, ICMA’s General Counsel said: “The adverse global fallout potentially from simultaneous sovereign defaults together with more diversity amongst sovereign creditors today necessitates further measures to facilitate better creditor coordination and minimise the time and disruption entailed in sovereign debt restructurings. Introducing these new majority voting provisions (“MVPs”) in commercial loans to sovereign borrowers should serve to extend more broadly the same financial stability benefits conferred by the enhanced collective action clauses for sovereign bonds published by ICMA previously and in wide use today.”

An IMF Staff Paper has noted that the lack of MVPs to amend payment terms in sovereign loan agreements is a gap in the current international architecture for resolving sovereign debt cases involving private creditors. MVPs in sovereign loans, like collective action clauses in bonds, allow a majority of bondholders to agree to changes in the debt’s payment terms, for example to extend maturities or reduce principal, that are legally binding on all holders of the debt, including those who vote against the restructuring. The new specimen clauses for sovereign loans, as with CACs in sovereign bonds, provide a practical solution to the problem of blocking minorities through the inclusion of majority voting.

New majority voting clauses for commercial loans to sovereign borrowers to facilitate sovereign debt restructuring

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