Clifford Chance and ICMA, together with International Monetary Fund staff and other interested parties are working to develop sovereign bonds and loans that include a debt reprofiling feature. The draft indicative terms for sovereign hurricane bonds and loans are a work-in-progress and available from the links below. Interested parties are encouraged to give comments to ICMA.
- Indicative Heads of Terms for Extendible Hurricane Bonds (coupon-preserving maturity extension version-bullet structure)
- Indicative Heads of Terms for Extendible Hurricane Bonds (coupon-preserving maturity extension version-amortization structure)
- Indicative Heads of Terms for Facility with Hurricane Linked Extendible Feature (debt service deferral version)
Principles for Stable Capital Flows and Fair Debt Restructuring - Report on implementation by the Principles Consultative Group
Members of the PCG, together with the IIF and ICMA have collaborated to update Annex VI of the Principles – “Best Practices for the Formation and Operation of Creditor Committees” – to add references to recent innovations in sovereign bond contracts, including aggregated CACs, while preserving the good faith criterion. The update is available in the Report on implementation by the Principles Consultative Group which was issued following the meeting of the Group of Trustees of the Principles in Washington in October 2017.
GDP-Linked Bonds: A New Design for Sovereign Debt Markets
A model set of terms and conditions, or “term sheet”, for GDP-linked sovereign bonds has been prepared by an ad hoc working group consisting of investment managers, lawyers and economists from the Bank of England, together with support from ICMA and other trade associations.
- The basic concept of GDP-linked government bonds is for their coupons and principal payments to be indexed to nominal GDP and in so doing allow both the burden of servicing interest payments and repayment of principle to adjust with the sovereign’s ability to pay.
- The major market and social welfare benefit of this is to reduce the risk of sovereign debt crises and disruptive defaults during a recession or downturn. In this regard, often GDP-linked bonds are seen as a form of holding equity in a sovereign, whose entire return will vary with economic performance instead of on a fixed basis.
- GDP-linked bonds can be designed to reduce the default risk premium by allowing the debt servicing burden to be reduced in times of fiscal duress. On the other hand, for investors, particularly those who believe a particular sovereign may be on its return to prosperity, GDP-linked bonds offer returns that can later outperform corresponding conventional bonds.
- Over a longer period of time of continued issuance, GDP-linked debt as well as other forms of state-contingent debt could work to de-risk sovereign balance sheets.
- Introduction - March 2017
- Payment structure
- Indicative term sheet - October 2017
- Design, Investor Response and Open Issues - March 2017
We attach a paper published by the Bank of England in the link below.
Financial Stability Paper 39: Sovereign GDP-linked bonds - James Benford, Thomas Best and Mark Joy with contributions from other central banks
All questions on the above may be directed to:
Managing Director, General Counsel; Member of ICMA's Executive Committee
Direct line: +44 20 7213 0336
STANDARD COLLECTIVE ACTION CLAUSES, PARI PASSU AND CREDITOR ENGAGEMENT PROVISIONS FOR THE TERMS AND CONDITIONS OF SOVEREIGN NOTES
ICMA has published model collective action clauses, pari passu and creditor engagement provisions for inclusion in the terms and conditions of sovereign debt securities. The use of these terms in sovereign notes is intended to facilitate future sovereign debt restructurings.
ICMA NEW YORK AND ENGLISH LAW STANDARD CACs, PARI PASSU AND CREDITOR ENGAGEMENT PROVISIONS - MAY 2015
ICMA STANDARD CACs, PARI PASSU AND CREDITOR ENGAGEMENT PROVISIONS - BLACKLINE AUGUST 2014 VS MAY 2015
ICMA STANDARD CACs - August 2014
ICMA STANDARD PARI PASSU PROVISION - August 2014
The Centre for Interantional Governance Innovation (CIGI) in Canada has published a useful paper in Feburary 2015 entitled "Sovereign Bond Contract Reform: Implementing the New ICMA Pari Passu and Collective Action Clauses".
The Peterson Institute for International Economics has published a useful article in regard to the ICMA sovereign debt contract reforms, entitled "A Sensible Step to Mitigate Sovereign Bond Dysfunction" by Anna Gelpern on 29 August 2014.
For archived sovereign debt informaton and the ICMA sovereign bond consultation paper, click here.