ICMA publishes new majority voting clauses for commercial loans to sovereign borrowers to facilitate sovereign debt restructuring
02 November 2022
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 restructuringAdditional information on Sovereign DebtICMA
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