Collective action clause
A collective action clause (CAC) allows a supermajority of bondholders to agree to a debt restructuring that is legally binding on all holders of the bond, including those who vote against the restructuring. Bondholders generally opposed such clauses in the 1980s and 1990s, fearing that it gave debtors too much power. However, following Argentina's December 2001 default on its debts in which its bonds lost 70% of their value, CACs have become much more common, as they are now seen as potentially warding off more drastic action, but enabling easier coordination of bondholders.
During the financial crisis of 2011–12, the Greek government imposed, with the support of the
In accordance with the treaty establishing the European Stability Mechanism, all bonds issued by Eurozone member states with maturities exceeding one year, issued after January 1, 2013, have a mandatory collective action clause. [4]
References
- ^ a b WSJ.com: "2nd UPDATE: Greece To Introduce Retroactive Collective Action Clauses-Source" 9 Jan 2012
- ^ a b c d e bloomberg.com: "Greece Pushes Bondholders Into Record Debt Swap" 9 Mar 2012
- ^ Collective Action Clauses: No Panacea for Sovereign Debt Restructurings
- ^ Collective Action Clauses in Euro area Archived 2014-08-11 at the Wayback Machine
External links
- Haldane, Andrew G, Penalver, Adrian, Saporta, Victoria, Shin, Hyun Song (2005), "Optimal collective action clause thresholds", Bank of England Quarterly Bulletin, Spring 2005
- Martin Gunkel Oktober 2006, Bewältigung von Staatsinsolvenz durch collective action clauses?, Diplomica GmbH, Hamburg, ISBN 3-8366-5135-1, Zugl.: Berlin, Techn. Univ., Diplomarbeit, 2006. (It is a summary about the discussion of cac as instrument to solving state insolvency and include a rich literature review)
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