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International Monetary Fund. Legal Dept. and International Monetary Fund. Monetary and Capital Markets Department
This paper reports on progress in inclusion of enhanced collective action clauses and modified pari passu clauses as of end-October 2018. The report finds that enhanced CACs have now become the market standard, with only a few issuers standing out from the market trend. Around 88 percent of international sovereign bonds (in aggregate principal amount) issued since October 2014 in the main jurisdictions of New York and England include such clauses. The modified pari passu clause continues to be incorporated as a package with the enhanced CACs, with few exceptions. In line with findings in previous reports, the inclusion of enhanced CACs does not seem to have an observable pricing effect, according to either primary or secondary market data. The outstanding stock of international sovereign bonds without enhanced CACs remains high, with about 39 percent of the outstanding stock including enhanced CACs.
International Monetary Fund. Legal Dept. and International Monetary Fund. Monetary and Capital Markets Department

Introduction 1. The IMF Executive Board endorsed in October 2014 the inclusion of key features of enhanced pari passu provisions and collective action clauses (CACs) in new international sovereign bonds. 1 2 Specifically, the Executive Board endorsed the use of (i) a modified pari passu provision that explicitly excludes the obligation to effect ratable payments, and (ii) an enhanced CAC with a menu of voting procedures, including a “single-limb” aggregated voting procedure that enables bonds to be restructured on the basis of a single vote across

Kay Chung and Mr. Michael G. Papaioannou
This paper analyzes the effects of including collective action clauses (CACs) and enhanced CACs in international (nondomestic law-governed) sovereign bonds on sovereigns’ borrowing costs, using secondary-market bond yield spreads. Our findings indicate that inclusion of enhanced CACs, introduced in August 2014, is associated with lower borrowing costs for both noninvestment-grade and investment-grade issuers. These results suggest that market participants do not associate the use of CACs and enhanced CACs with borrowers’ moral hazard, but instead consider their implied benefits of an orderly and efficient debt resolution process in case of restructuring.
Kay Chung and Mr. Michael G. Papaioannou

, in August 2014, the International Capital Market Association (ICMA) put forward recommendations relating to model enhanced CACs and a model pari passu clause for sovereign debt issuers that could facilitate a more efficient and orderly restructuring process. Subsequently, the IMF Executive Board endorsed the ICMA recommendations in October 2014 ( IMF 2014 ). In general, CACs allow for a supermajority of creditors to impose restructuring terms on minority holdout creditors. This contributes to an efficient resolution process, which typically reduces the cost of

International Monetary Fund

challenges in some recent restructurings. The uptake of enhanced CACs continues to be high. The two-limb aggregated voting mechanism of these clauses was first used in the recent Ecuador and Argentina restructurings. The single-limb voting mechanism has not yet been used. Targeted statutory tools, such as “anti-vulture fund legislation”, are in effect in a few advanced economies that complement the contractual approach to sovereign debt restructurings. While the current contractual approach has been largely effective in resolving sovereign debt cases since 2014, it

International Monetary Fund
There have been significant developments in sovereign debt restructuring involving private-sector creditors since the IMF’s last stocktaking in 2014. While the current contractual approach has been largely effective in resolving sovereign debt cases since 2014, it has gaps that could pose challenges in future restructurings.
International Monetary Fund
As part of the Fund’s ongoing work on sovereign debt restructuring, in October 2014 the Executive Board endorsed the inclusion of key features of enhanced pari passu provisions and collective action clauses (CACs) in new international sovereign bonds.1 Specifically, the Executive Board endorsed the use of: (i) a modified pari passu clause that explicitly excludes the obligation to effect ratable payments and (ii) an enhanced CAC with a menu of voting procedures, including a “single-limb” voting procedure that enables bonds to be restructured on the basis of a single vote across all affected instruments, a two-limb aggregated voting procedure and a series-by-series voting procedure.
International Monetary Fund

Introduction 1. As part of the Fund’s ongoing work on sovereign debt restructuring, in October 2014 the Executive Board endorsed the inclusion of key features of enhanced pari passu provisions and collective action clauses (CACs) in new international sovereign bonds. 1 Specifically, the Executive Board endorsed the use of: (i) a modified pari passu clause that explicitly excludes the obligation to effect ratable payments and (ii) an enhanced CAC with a menu of voting procedures, including a “single-limb” voting procedure that enables bonds to be

International Monetary Fund

. 3. The architecture has improved and has generally performed well in recent years, but the system has gaps that could pose challenges, particularly if sovereign debt distress were to reach systemic levels . Recent restructurings have generally proceeded smoothly, were largely preemptive, and had high creditor participation. The uptake of enhanced collective action clauses has been strong. However, enhanced CACs have only just begun to be used in sovereign debt restructurings and there is still a large outstanding stock of international sovereign bonds without

International Monetary Fund

Introduction 1. The IMF Executive Board endorsed in October 2014 the inclusion of key features of enhanced pari passu provisions and collective action clauses (CACs) in new international sovereign bonds. 1 Specifically, the Executive Board endorsed the use of (i) a modified pari passu provision that explicitly excludes the obligation to effect ratable payments, and (ii) an enhanced CAC with a menu of voting procedures, including a “single-limb” aggregated voting procedure that enables bonds to be restructured on the basis of a single vote across all