The Required Threshold to Restructure Sovereign Debt
The R equired Thr eshold to Restructure Sovereign Debt
Comparative Law Review 0 1
Law Reviews 0 1
Jose Jr. Garcia-Hamilton 0 1
Rodrigo Olivares-Caminal 0 1
Octavio M. Zenarruza 0 1
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1 Jose Jr. Garcia-Hamilton, Rodrigo Olivares-Caminal, and Octavio M. Zenarruza, Th e Required Th reshold to Restructure Sovereign Debt, 27 Loy. L.A. Int'l & Comp. L. Rev. 249 (2005). Available at:
The Required Threshold to Restructure
Jost GARCiA-HAMILTON JR., RODRIGO OLIVARES-CAMINAL &
OCTAVIO M. ZENARRUZA*
Debt has been the largest source of capital flow to developing
countries in the past fifty
During the 1970s, lending
increased drastically due to the use of petro-dollars and to the
developing Eurodollar market.2 In the 1980s, the global debt crisis
hit less developed countries (LDCs).3 As a way out of this debt
crisis, in March 1989, U.S. Treasury Secretary Nicholas F. Brady
articulated the Brady Plan to address the debt crisis.4 The Brady
Plan not only addressed debt relief to LDCs, but also tried to
restore solvency to the highly indebted banks that continued to
pour money into these countries.5
The effect of the Brady Plan was to convert the form of
private debt from commercial bank loans into bonds.6 The bond
* Jose Garcfa-Hamilton, Jr., L.L.M., International Economic Law, Warwick
University (UK), ; Rodrigo Olivares-Caminal, L.L.M.,
International Economic Law from Warwick University (UK), olivares-caminal@
lstcounsel.com; Octavio M. Zenarruza, L.L.M., University of Pennsylvania, o.zenarruza@
aprado.com.ar. Rodrigo Olivares Caminal is currently pursuing a Ph.D. in the
International Finance Law Unit at CCLS, Queen Mary-University of London.
1. Randall Dodd, Sovereign Debt Restructuring,9 FINANCIER 1-4 (2002), available at
http://www.financialpolicy.orgldscsovdebt.pdf (last visited Jul. 25, 2005).
2. See LEX RIEFFEL, RESTRUCTURING SOVEREIGN DEBT: THE CASE FOR AD Hoc
MACHINERY 153-54 (2003).
3. See id. at 154.
4. See id. at 170.
5. See generally id. at 149-77 (detailing the Brady Plan).
6. Lee C. Buchheit, Sovereign Debtors and Their Bondholders, UNITAR Training
Programmes on Foreign Economic Relations 4 (Feb. 2000), available at
http://www.unitar.org/dfm/Resource-center/Experts/Buchheit/BooksChap.htm ("As a
result of the Brady Plan, most of the emerging market debt held by private investors is
market has increased four times as quickly as syndicated bank
loans.' This rapid increase of bond issuances and the worsening
financial crisis made bond restructuring more important, especially
for sovereign borrowers.8
Since the conception of the Brady Plan in 1989, Argentina,
Brazil, Bulgaria, Costa Rica, the Dominican Republic, Ecuador,
Ivory Coast (Cote dIvoire), Jordan, Mexico, Nigeria, Panama,
Peru, the Philippines, Poland, Uruguay, Venezuela, and Vietnam
have reduced their debt-mostly in syndicated loans-by the
issuance of Brady bonds.9 This notwithstanding, these and other
developing countries continued to issue bonds to fulfill further
financing needs or simply to raise money from the capital
markets.' In many cases, countries amassed unsustainable debt
burdens, fueling the increasing need to restructure sovereign
debts, such as in Russia, Ukraine, Ecuador, Pakistan, Uruguay,
These restructuring cases were achieved through a
marketoriented approach based on corporate debt restructuring
procedures, which involved a maturity extension and, in some
cases, a haircut. 2
This Article explores the holdout of creditors, which has been
the major issue in sovereign debt restructuring since the late 1990s.
Part II discusses the rights and case law of holdout creditors
regarding sovereign debt restructuring. Part III discusses
Argentina's debt restructuring resulting from its 2001-2002 default.
Part IV explores techniques to deal with holdout creditors under
New York and English law, which are the laws that govern most
sovereign debt issuances, and to a lesser extent the relevant
German and Japanese law. Part V analyzes how the techniques
referred to in Part IV were applied in two case studies: Ukraine
and Ecuador. Finally, Part VI concludes with the best alternatives
available to solve the holdout issue.
II. DEBT SWAPS, EXCHANGE OFFERS
Sovereign states can restructure their debt to prevent or
resolve financial and economic crises and to achieve debt
sustainability levels. 3 Sovereign debt restucturing has two aspects:
procedural and substantial.14 The procedural aspect focuses on the
way restructuring should be performed, e.g., its architecture, and
the substantial aspect focuses on the actual restructuring of debt,
"which is normally characterized by rescheduling amortization
schedules as well as writing off the debt principal.""5
During the 1990s, many sovereign debt restructurings ("debt
swaps") experienced difficulties because some bondholders did not
want to accept the sovereign's exchange offer, which includes a
write-off, and instead claimed the total value of the debt. 6 These
creditors are known as "holdout" or "rouge creditors."' 7 This
practice was upheld in some court decisions. The most relevant
cases which protect holdout creditors and encourage their
practices are analyzed below.
A. PravinBankerAssocs. v. Banco Populardel Peru
Associates ("Pravin") invested in
Popular del Peru's ("Banco Popular") debt.' 9 Banco Popular's
main shareholder, the Republic of Peru ("Peru"), collateralized
the debt.2 Due to Peru's financial crisis, Banco Popular defaulted
on its principal payments on the debt.21 Pravin, after sending a
notice to the defaulted debtor, claimed payment for the total
outstanding debt.2 Peru appointed a liquidation committee to
restructure Banco Popular's debt, 3 but Pravin refused to
participate in Peru's liquidation process and instead filed a claim
for the payment of its debt at the nominal value against Banco
Popular and Peru. 4
During the trial, Peru stated that Pravin bought the Peruvian
debt at a substantial discount over its face value, and that a total
recovery of the debt could not be considered by any party." A
total recovery would have meant an illegal enrichment and would
have allowed Pravin to obtain an unexpected gain, to Peru's
disgrace. In Pravin Banker Assocs., the New York Court of
Appeals balanced two principles to determine whether
international comity should be extended to the United States: the
success of public debt restructuring, including the International
Monetary Fund's (IMF) involvement under the Brady Plan, and
the payment of valid debts under contract law principles. 6
After having granted two waiting periods, first six months and
then another two months, the court of appeals held that Pravin
was not obligated to abide by the Brady Plan because the
participation of creditors in such restructuring processes was
strictly voluntary." In addition, the court considered that an
undefined suspension of the proceedings would prejudice U.S.
interests with respect to the terms and conditions of valid contracts
executed under U.S. law."'
B. ElliottAssocs. LLP v. Banco de la Nacion
After Pravin Banker Assocs., Peru found itself in court again
in Elliott Assocs. The court of appeals held that the purchase of
Peru's distressed sovereign debt with the intention to bring suit did
not violate section 489 of the New York Judiciary Law. Section
489 prohibits the purchase of a claim "with the intent and for the
purpose of bringing an action or proceeding thereon."3 °
The court of appeals held that the investor did not violate the
law since the debt instrument was acquired for the primary
purpose of enforcement, with intent to resort to litigation only if
necessary to accomplish this purpose.332 The decision to file a claim
was the consequence of nonpayment.
As in Pravin Banker Assocs., the court of appeals balanced
two aspects: 1) granting U.S. citizen bondholders an opportunity to
claim payment of their credit, which limited the chances of
achieving debt restructuring under the IMF's umbrella; and 2) not
allowing the claim because it would prejudice New York as a
financial world center.3 Both issues were important for U.S.
foreign affairs policy.34 The court of appeals believed that investor
protection was a stronger priority. 5
The peculiarity of this case, although similar to PravinBanker
Assocs., was the lack of assets to attach in the United States, which
forced the claimant to resort to the courts of Brussels in Belgium
in order to seek enforcement of the decision. 6
The Brussels Court of Appeals rendered a decision
prohibiting Chase Manhattan, as financial agent, and Euroclear to
pay interest on Peru's Brady Plan bonds. These Brady bonds
were issued as the result of a sovereign debt restructuring. With a
court order not to make any payments, Peru was facing default on
the restructured bonds.39 Although Peru did not pay interest on the
due date, it technically had a thirty-day period to fulfill the
payment before the default was declared.4°
Facing this situation, Peru was obligated to reach an
agreement with Elliott Associates L.P. ("Elliott") in order to avoid
a new default on its restructured debt.41 Under this agreement,
Elliott obtained a gain worth 400% of the purchase value of the
C. LNC Investments, Inc. v. The Republic of Nicaragua
In 1999, New York courts decided LNC Investments,
obligating Nicaragua to pay $87 million resulting from defaulted
commercial loans granted in the 1980s.43 LNC Investments
preferred to file a claim rather than participate in the successful
sovereign debt restructuring procedure.
LNC Investments enforced the U.S. judgment in a Brussels
court, following the precedent of Elliott Assocs.45 As in Elliott
Assocs., LNC Investments obtained a judicial order that
prohibited interest payments of restructured bonds." The order
was directed toward Euroclear to refuse orders of payments from
Bankers Trust Deutsche Bank.47
The Brussels Court of Appeal reversed the decision upon
appeal. "s Although it seems that the Brussels court reversed the
criteria set forth in ElliottAssocs., in fact the Brussels court did not
directly consider the pari-passuclause4 9 as it did in ElliottAssocs.
It is unfortunate that Belgian courts have had to interpret
New York law." In 2003, for the first time, a New York court faced
a pari-passuclause issue but regrettably it was not analyzed 2
III. ARGENTINE PROPOSAL
Due to its complexity, the recent case of Argentina's
sovereign debt crisis is to some extent challenging the current debt
restructuring framework. We will refer to the issue of exit consent
and collective action clauses (CACs) in connection to the
Argentine case, as well as a new development in the litigation
The Argentine government announced its moratorium
48. Id. at 19.
49. According to L. Buchheit, "the purpose of the pari-passu clause is to ensure that
the borrower does not have, nor will it subsequently create, a class of creditors whose
claims against the borrower will rank legally senior to the indebtedness represented by the
loan agreement." See L. BUCHHEIT, HOW TO NEGOTIATE EUROCURRENCY LOAN
AGREEMENTS 83 (Rob Manis ed., 2d ed. 2004).
50. The criteria set forth in Eliott was that Perd was trying to make a payment to
some but not all of its creditors in violation of the principle of equal treatment stated by
the Brussels court in its interpretation of the pari-passu clause, which provides that all
creditors should be paid pro-rata. For an enlargement on the Elliotcase, see Eduardo Luis
Lopez Sandoval, Sovereign Debt Restructuring: Should We Be Worried About Elliott?,
HARVARD LAW SCHOOL INTERNATIONAL FINANCE SEMINAR 26 (2002), available at
http://www.law.harvard.edu/programs/pifs/pdfs/eduardo-sandoval.pdf. For an elaboration
on the pari-passuclause, see Lee C. Buchheit & Jeremiah S. Pam, The PariPassu Clause in
Sovereign Debt Instruments, 53 EMORY L.J. 869 (2004); Phillip R. Wood, Pari Pasu
Clauses: What Do They Mean?, 18 BUTrERWORTH J. OF INT'L BANKING & FIN. L.
51. Republique Du Nicaragua v. LNC Invs. LLC et Euroclear Bank, No. R.K. 240/03
[Tribunal de Commerce de Bruxelles] 2003 (Belg.) (on file with author).
52. On January 13, 2004, upon the memorandum of law of Argentina and the
plaintiffs, the US Statement of Interest and the amicus curiae briefs filed by the Federal
Reserve Bank of New York and the New York Clearing House, a New York court was
asked to resolve the pari passu issue for the first time in the US. Although the court did
not resolve the pari passu issue, the plaintiffs had to sign an agreement giving the court 30
days notice before filing papers intended to stop such payments under the pari passu
clause. Although the core issue was not resolved, an order was issued by the court
ordering Argentina to divulge information about government property outside the country
that is used for commercial purposes. See Alinna Arora & R. Olivares Caminal,
Rethinking the Sovereign Debt Restructuring Approach, 9 L. & BUS. REV. AM. 629, 666
(2003); Macrotecnic Int'l Corp. vs. Republic of Argentina, No. 02 Civ. 5932 (TPG), 2003
U.S. Dist. LEXIS 6156
(S.D.N.Y. Apr. 14, 2003)
; EM Ltd. vs. Republic of Argentina, No.
03 Civ. 2507 (TPG), 2003 U.S. Dist. LEXIS 15975
(S.D.N.Y. Sept. 16, 2003)
December 2001,"3 officially declaring its default on April 25, 2002
pursuant to the Ministry of Economy Resolution No. 73/2002. 54
This Resolution postponed sovereign debt payments until
December 31, 2002.
From a total outstanding debt of approximately $180 million,
$95 million would be restructured. The following chart shows the
composition of the Argentine debt:57
Argentine public debt has particular characteristics since it is
the largest default to date, 581 followed by the Russian
In addition, because bonds replaced syndicated loans, which
resulted in an increased creditor base, Argentina's biggest
problem6 ° was to coordinate its over 700,000 creditors with
differing interests. 6' Furthermore, there are 152 different series of
bonds, with eight different governing laws.62
Institutional investors hold 56.5% of the total outstanding
debt to be restructured, while the remaining 43.5% is held by retail
investors.63 Almost 40% of Argentine defaulted debt is held by
Argentinean bondholders and the remaining 60% is distributed in
more than eight countries. 64 Within this framework, Argentina's
challenge does not seem to fit a textbook Wall Street case.
On January 12, 2005, Argentina announced its final sovereign
debt restructuring proposal.65 The first proposal was announced in
September 2003 in Dubai during an IMIF annual meeting.66 This
proposal consisted of a 75% nominal value write-off and no
The second proposal was announced on June 1, 2004 and it
recognized: (i) the unpaid interests from December 2001 until the
end of 2003 for $18.2 million as long as the proposal is accepted by
seventy percent of the bondholders;68 and, (ii) an annual cash
sweetener tied to the gross domestic product.69 According to the
proposal, Argentina would face payments of around $1 billion in
the first year after the restructuring.
The guidelines of the final proposal presented on January 12,
2005 are as follows:
(i) Principal:A seventy-five percent write-off over the nominal
value of a total outstanding debt of $81,200 million in default.
(ii) Nominal Write Off It is performed on the principal. In
nominal terms, it totals $60.9 million (81,200 x 75/100).
(iii) Acknowledgement of Due Interests: The original offer
made in Dubai on September 2003 posed: (a) a seventy-five
percent write-off over the nominal value of a total outstanding
debt of $81,200 billion in default; and, (b) a 100% write-off of
the accrued interests corresponding to the period between
December 2001 (the date of the moratorium announcement)
and December 2003 (the date the definitbeilolifofenr.71was supposed to
be announced), which amounts to $18.2
In the final proposal, the Argentine government acknowledged
the accrued interests. Therefore, the amount of debt to be
restructured is $99.4 billion, considering that a seventy-five
percent write-off on principal is still applicable. Although the
interests are acknowledged, they would be capitalized in the
same time frame as the new bonds to be issued (between thirty
and forty-two years), thereby resulting in a bigger share of par
bonds and quasi par bonds. 72
(iv) New Debt Issuance: The following are the major terms and
conditions of the bonds to be issued in place of the outstanding
a) $38.5 million corresponds to the outstanding debt plus
accrued interests up to December 31, 2003, with an applicable
write-off of seventy-five percent.71
b) In the event that the percentage of acceptance is equal to,
or exceeds, seventy percent of the total amount of
bondholders, the new debt to be issued would be $43.2
c) If Argentina were to exchange, amend, or repurchase any
of the eligible bonds which are not tendered in the final
proposal before December 2014, then the participating
bondholders in the exchange offer would have the option to
repurchase on the basis of their original debt haomldeinndgsm.7e5nt, or
participate in any such new exchange,
d) As from the issuance date (December 31, 2003) and up to a
period of six years (2004-2009), the payment capability
allocated for the new bonds which are not tendered will be
used exclusively to repurchase public debt, with the exception
of non performing bonds not participating in the exchange
e) The issuance date of the new bonds will be December 31,
2003, the early subscription period will go from January 14
until February 4, 2005, and the remaining period will be until
February 25, 2005." The new bonds will be divided into three
different types of bonds. Each type of bond will be issued
according to the following detail:
The main characteristics of the bonds to be issued, which will
replace the current 152 series of bonds in default, are as follows:7 9
(i) ParBonds: These bonds will be subject to any write-off on
the nominal value of the bonds they replace, but will have a
longer maturity period with a lower interest rate than the bonds
being swapped. They will be issued in the amount of $10
1735/04 published in December 2004. This last minute change diluted the purpose of this
clause because a window was left open to settle claims with holdout creditors without
triggering the clause. After this blunder, the Argentine Congress passed Law 26,017
prohibiting the reopening of the exchange offer or the performing of any kind of
76. See OFERTA DE CANJE, supra note 69, available at http://www.mecon.gov.ar/
basehome/argentina-roadshow-presentation enero 12 2005 v final web.pdf.
78. Comisi6n de Economia, supra note 71, available at http://www.cai.org.ar/
79. See OFERTA DE CANJE, supra note 69, available at http://www.mecon.gov.ar/
basehome/argentina roadshow presentation enero 12 2005 v final web.pdf.
billion with a thirty-five year maturity and a twenty-five year
grace period. They will have a "step up" coupon, which
increases the interest to be paid over time. The applicable
interest rates would be 1.3% from the first to the fifth year;
2.5% from the sixth to the fifteenth year; 3.75% from the
sixteenth to the twenty-fifth year; and, 5.25% from the
twentysixth year onwards. These bonds will mature in 2038 and
amortization will commence in 2029. Payments will be
semiannual. Additionally, par bondholders will receive outstanding
accrued interest from December 31, 2003 to January 4, 2005."
(ii) Quasi ParBonds: These will be subject to 30.1% write-off
on the nominal value of the bonds that they replace and will be
issued in Argentine pesos.82 They will be issued in the amount
of $8.3 million, with a forty-two year maturity and a thirty-two
year grace period.83 The coupon would have a 5.57% annual
interest rate that will be capitalized during the first ten years
and would be paid from the eleventh year onwards, 84 and the
capital will be adjusted by an indexation ratio of peso-fied debts
commonly known as Coeficiente de Estabilizaci6nde Referencia
(CER).85 These bonds will mature in 2045 and amortization will
commence in 2036.86
(iii) Discount Bonds: These will have a write-off of 66.3% on
the nominal value of the bonds that they replace. 8' They will be
issued in the amount of $20.2 billion,"' with a thirty year
maturity and a twenty year grace period. They are going to have
a "step up" coupon, which increases the interest to be paid over
time. The applicable interests would be 3.97% from the first to
the fifth year; 5.77% from the sixth to the tenth year; and 8.28%
from the eleventh year onward.89 In addition, they will have a
"step up" capitalization of interest during the first ten years of
4.31% from the first to the fifth year and 2.51% from the sixth
to the tenth year.90 These bonds will mature in 2033 and
amortization will commence in 2024.91 Additionally, discount
bondholders will receive outstandin accrued interest from
December 31, 2003 to January 4, 2005.
(iv) GDP linked Value Recovery Right: All bonds will have a
GDP linked Value Recovery Right (VRR). The VRR will
annually increase the payments resulting from the new bonds in
the event that Argentina's GDP growth during the year exceeds
the calculus done by the Argentine government and that would
be jointly presented with the restructuring offer.93 The
exceeding amount that triggers the payment is defined in the
medium term as the amount exceeding an annual growth
estimated at three percent. 94
Due to the time elapse since Argentina's default, some
bondholders opposed to the debt exchange offer organized
themselves or obtained the required majorities to oppose the
amendments of the terms and conditions of the bonds in default,
becoming a "blocking holding." 95 This did not permit Argentina to
make an exchange offer using a combined mechanism with the use
of exit consent and the grant of an express mandate for those
accepting the exchange offer, as was done in the cases of Ecuador
and Ukraine, respectively. 96 Hence, Argentina lost the chance to
use the mechanism that would have lessened the holdout problem
by discouraging the non-accepting creditors without affecting the
payment terms, provided that the required percentage to amend
the terms and conditions of the prospectus was obtained.97
For this reason, on November 15, 2004, Argentina filed a
Memorandum of Law with the District Court of the Southern
District of New York opposing plaintiffs' motion for a preliminary
injunction." Argentina confirmed that it would not use exit
consent in its final exchange offer launched on January 12, 2005."
The relevant part of the Memorandum states:
Plaintiffs' ex parte motion for a preliminary injunction is based
on their incorrect speculation that the Republic's as-yet
unannounced Exchange Offer will contain "exit consents" that
will somehow inflict irreparable harm upon them. Of course
had plaintiffs simply waited until the November 29 launch of
the Exchange Offer (which is not scheduled to close until 2005)
they would have learned what the Republic has publicly
confirmed: the Exchange Offer will not include exit consents. 00
Argentina's final debt proposal included a cash payment as an
incentive to the accepting bondholders, of accrued outstanding
interest, as a way to increase the degree of acceptance of the debt
exchange offer. Otherwise the number of bondholders' claims
during an informal conversation with one of the lawyers advising the Argentine
government in its sovereign debt restructuring.
97. This occurred in Ecuador and Uruguay debt restructuring cases. For an
enlargement of the results in Ecuador and Uruguay in using the exit consent technique,
see generally Lee C. Buchheit, How EcuadorEscaped the Brady Bond Trap, INT'L FIN. L.
REV., 17 (2000); Lee C. Buchheit & Jeremiah S. Pam, Uruguay's Innovations,19 J. INT'L
BANKING L. & REG. 28(2004).
98. Memorandum of Law of the Republic of Argentina in Opposition to Plaintiffs'
Motion for a Preliminary Injunction, Seijas v. The Republic of Argentina (04 Civ. 400).
99. Id. at 1.
101. See OFERTA DE CANJE, supra note 69, available at http://www.mecon.gov.ar/
basehome/argentina roadshowpresentation enero_12_2005 v finalweb.pdf; see also
Kentaro Tamura, The Problem of Sovereign Debt Restructuring:How Can We Deal with
the Problem?, HARVARD LAW SCHOOL INTERNATIONAL FINANCE SEMINAR 16 (Apr.
2002), availableat http://www.law.harvard.edu/programs/pifs/pdfs/kentaro-tamura.pdf.
against Argentina could have increased. Currently, Argentina is
facing many claims in different courts (e.g., New York, Italy,
Germany, and some local claims). °2
Argentina has already missed the opportunity of
implementing the use of "exit consent" to tackle the holdout
problem, having to resort to a cash payment of accrued interests to
increase the degree of acceptance and to decrease the holdout
In addition, another threat looms in Argentina's horizon that
might affect the success of Argentina's final exchange offer-class
actions. An attempt to use a class action in sovereign restructuring
was tested in two cases, although no class was certified because the
parties settled the case prior to any further development.'04 Within
Argentina's recent default, a class was certified for the first time in
the sovereign context.
On December 30, 2003, a class certification was granted in
H.W. Urban GmbH v. the Republic of Argentina.'°0 This action
involved the following bonds of the Republic of Argentina: (i)
bonds issued on January 30, 1997 and due on January 30, 2017,
bearing an 11.375% interest rate; and, (ii) bonds issued on April 7,
1999 and due on April 7, 2017, bearing an 11.75% interest rate.107
The court stated:
[T]here is no basis for ruling that a properly defined class
action should not be similarly entertained by the court pursuant
to the law governing class actions. That this action complies
with the requirements of Fed. R. Civ. P. 23 is clear and requires
little discussion. The class is sufficiently numerous for class
action treatment. The questions of law and fact upon which
liability depends are common to all members of the class, since
liability depends on contractual terms applicable to all bonds.
Plaintiff, being a bondholder, has claims typical of those of the
class by virtue of being subject to the same contractual terms.
There is no reason to doubt that plaintiff can act as a proper
representative, and his attorneys have a record of experience in
What has been said covers the requirement of Rule 23(a).
With regard to Rule 23(b), the court needs to find, in addition
to what is required under 23(a), that one of three alternative
conditions is satisfied. The part of Rule 23(b) relevant to the
present case is Rule 23(b)(3), which provides that class action
treatment is appropriate where: (3) the court finds that the
questions of law or fact common to the members of the class
predominate over any questions affecting only individual
members, and that a class action is superior to other available
methods for the fair and efficient adjudication of the
controversy. The matters pertinent to the findings include: (A)
the interest of members of the class in individually controlling
the prosecution or defense of separate actions; (B) the extent
and nature of any litigation concerning the controversy already
commenced by or against members of the class; (C) the
desirability or undesirability of concentrating the litigation of
the claims in the particular forum; (D) the difficulties likely to
be encountered in the management of a class action.
It is clear that the questions of law and fact common to the
members of the class predominate over any individual
questions. As already described, all questions relating to
liability are common. Questions as to the type of relief will also
be common. The remaining individual issues about the
quantum of relief can undoubtedly be resolved by the
processing of claims, which need not be unduly complex. As to
the superiority of a class action to other procedures, the court
notes the following. As indicated earlier, certain bondholders
prefer to bring their own individual actions, and have done so.
But for those who wish to be part of this proposed class action,
it is reasonable for them to believe that it is superior to their
bringing individual actions. For those who do not wish to be a
part of the present class action, they will have an opportunity to
make that choice.
What has just been said takes care of items (A) and (B). As
to item (C), there is surely nothing desirable about having the
claims of the members of the proposed class spread around in
Regarding item (D), the court does not see that there will be
any particular difficulties in management, now that the class has
been defined to relate to two series of bonds. At least, there
would appear to be no greater difficulty than occurs in other
large class actions. The court does not agree with the Republic
that notice will present an insuperable difficulty. Although it
may be necessary to go through an institution, or even more
than one institution, to reach the actual bondholders, this is
apparently accomplished in order to make payments of interest,
and the same should be true for giving notice of the action.
The court wishes to add the following comment as to how the
action will proceed. The court is required, under Rule 23(c)(2),
to give notice to class members, offering them an opportunity to
"opt out." But the court also has discretion under Rule 23(d) to
require class members to come forward affirmatively and
"present claims." In fact, the need to do this at some
appropriate time is obvious because no judgment can be
rendered without the presentation of such claims. It would be
the intention of the court in this case to accelerate the claim
procedure as much as possible, in order to arrive at a definite
determination of who is participating in the class action. For
one thing, it is desirable in order to provide information to
those negotiating the restructuring as to who has chosen the
class action litigation route and who has not.
Therefore the success of Argentina's debt exchange offer will
be conditioned by the final outcome of the class action litigation,
which might open a window for a completely new approach in
sovereign debt restructuring.
IV. IMPORTANCE OF THE APPLICABLE LAW TO THE CURRENT
Because there is no standard legal regime applicable to
sovereign debt restructuring and usually there is more than one
applicable legislation, the international financial community has
tried to offset the holdout practice by means of (i) exit consent; (ii)
the International Monetary Fund's (IMF) proposal to establish a
Sovereign Debt Restructuring Mechanism (SDRM); and, (iii) the
acceptance of collective action clauses (CACs). °9 SDRM is a
proposal under the umbrella of the IMF aimed at tackling the
holdout problem through an internationally binding legal regime,
while exit consent and CACs are two different techniques that can
be used by a market-oriented approach to sovereign debt
B. Exit Consent, SDRM and CA Cs
Exit consent is the technique developed in Ecuador's
sovereign debt restructuring in 2000, by which the holders of
defaulted bonds that accepted to swap their old bonds in an
exchange offer-at the moment of accepting such exchange
offergrant their consent to amend certain terms of the old bonds.1 ° The
amendment to the terms of the old bonds would take place once
the required majority accepted the exchange offer."' The
amendment would make the old bonds less attractive, forcing
more bondholders to potential holdout because the bonds would
be stripped of its original guarantees."
The SDRM proposed by the IMF is an international
restructuring procedure for sovereign states."3 The IMF's proposal
is based on a "twin-track" mechanism which is based on two
complementary approaches-contractual and statutory-to create a
more orderly restructuring scenario. 14 While the former implies
the use of certain terms such as the CACs, the latter would create
a legal framework for collective decisions by debtors and a
supermajority of its creditors.115
A new trend that has been developed by the Mexican and
Brazilian debt issuances during 2003 is the use of CACs."16 CACs
are bond clauses that allow amendment of all the terms of the
bonds by a pre-established holding majority. 117 The required
majority is usually seventy-five percent of the bondholders, but in
other cases it is eighty-five percent." 8
Uruguay re-profiled all of its global debt and included CACs
in the new terms of the bonds. 119 The use of CACs permits a more
orderly debt workout, without necessitating any recourse to an
exchange offer. 120 Moreover, in the event of future debt
restructuring, the holdout problem would be overridden because a
supermajority would bind a dissenting minority. 21
Most of the Argentine bond series do not include CACs. 22
Moreover, the SDRM is not in force yet and will not be in the
short run.1 23 Therefore, exit consent would have become relevant
in Argentina's debt restructuring. The terms and conditions to
amend the terms of the bonds in the event that exit consent would
have been used differ depending on the applicable law.
C. Applicable Laws to Amend the Terms of the Argentine Bonds
Most of the series of bonds issued by the Republic of
Argentina are subject either to New York law or English law.124
The requirements to amend the terms and conditions are included
in the prospectus of each series of bonds.12 ' The requirements
might change depending on each issuance. 126 However,
prospectuses subject to the New York law or English law include
certain features of their own legal systems that are usually applied
in corporat1e27 bond issuances that allow us to trace certain general
In order to amend the bonds subject to New York law, the
terms and conditions can be divided into three categories:2 8
(i) Category I: These clauses expressly require unanimous
amendment by the bondholders and are related to the payment
terms. Examples of these clauses include the amount of debt or
face value of the bond, the maturity date, the currency of the
issuance, and the terms to amend the bond's terms.
(ii) Category II: These clauses, if modified, affect the clauses
related to the payment terms mentioned above. Examples of
these clauses include the applicable law, events of default, and
(iii) Category III: These are remaining clauses not included
under Category I or II. Examples of these clauses include
jurisdictional immunity, financial covenants, listing
requirements, and pari-passuclauses.
Category I, the
vote of all bondholders is revuired, which is nearly
Category II is a grey area. Finally, Category III
includes bond clauses that usually can be amended by 66%% of the
On the other hand, to amend any clause (classified under
Categories I, II and III for bonds issued subject to New York law)
subject to English law, a supermajority is required. 1 2 To amend the
payment terms (Category I), however, a quorum of seventy-five
percent of the bondholders is required together with the required
votes, which may vary according to the terms set forth in the
prospectus and its supplement S •fr1o33m a simple majority to 75
percent of the aggregate majority. As in the bonds subject to
New York law, the conditions to amend the terms are set forth in
the issuance terms and conditions included in the prospectus. 134
shareholders of a listed company (who usually are residents within the same country)
assist at a conveyed meeting, the chance is even less of getting bondholders involved in an
event of this kind since the bondholders are anonymous and more difficult to notify.
130. See Lee C. Bucheit & G. Mitu Gulati, Exit Consents in Sovereign Bond Exchange,
48 UCLA L. REV. 59, 80 (2000).
131. 662/3 is the percentage usually required to amend Category III clauses. See, e.g.,
Republic of Arg., USD 20,415,457,800 Debt Securities and Warrants to Purchase or
Exchange Debt Securities, filed with the SEC on May 18, 2001, Reg. No. 333-13536. The
modifications clause states:
Meetings and Amendments: ... Argentina, the fiscal agent and the holders of the
debt securities may generally modify or take action with respect to the Fiscal
Agency Agreement or the terms of the debt securities of a series upon the
affirmative vote or written consent of the holders of not less than 662/3 % of the
outstanding principal amount of the debt securities of the series. The following
modifications, however, require the consent of the holder of each debt security
of a series: (i) a change in the payment dates for the payment of principal,
premium, or interest; (ii) a reduction of the principal amount, the portion of the
principal amount payable upon acceleration or the interest rate; a change in the
payment currency or places of payment; (iii) a change in procedures for or in the
definition of an event of redemption in the debt securities of a series; (iv) a
shortening of the period during which Argentina is not permitted to redeem the
debt securities of a series if, prior to that action, Argentina is not permitted to
redeem the debt securities; (v) a reduction of the proportion of the principal
amount of the debt securities of a series of a series to vote or consent of the
holders of which is necessary to take action with respect to or modify the Fiscal
Agency Agreement or the terms and conditions of the debt securities of the
series; or, (v) a change in Argentina's obligation to pay additional amounts....
132. See Sovereign Bonds and the Collective Will, supranote 125, at 1324-25.
133. See id. at 1325.
134. The following is the example of an amendment clause of a standard sovereign
debt prospectus under English law:
Meetings of Noteholders, Modification and Waiver: (a) Meetings of
Noteholders: ... [T]he quorum for any meeting to consider an Extraordinary
Resolution will be two or more persons holding or representing a clear majority
in nominal amount of the Notes of the relevant Series for the time being
outstanding, or at any adjourned meeting two or more persons holding or
Considering that all the terms and conditions can be
(including the payment terms under Category I) by a
bonds issued under English law have CACs.
(i) The terms and conditions required to amend a bond issued
under New York law are: (a) a fifty-one percent nominal value
quorum inantyheubfisrqasudtenmoueertnindg or a .twen1t3y6-five percent quorum on
any subsequent adjourned meeting; (b) unanimity (100% of
the nominal value of the series) to amend the payment terms
(Categories I and II); and, (c) a 66%% of the nominal value of
the series to amend any other term (Category III) which does
not imply to amend the clauses included under Categories I and
representing holders of Notes of the relevant Series whatever the nominal
amount of the Notes of the relevant Series held or represented, unless the
business of such meeting includes consideration of proposals, inter alia, (i) to
amend the dates of maturity or redemption of the Notes of any Series or any
date for payment of interest thereon, (ii) to reduce or cancel the nominal
amount of the Notes of any Series, (iii) to reduce the rate or rates of interest in
respect of the Notes of any Series or to vary the method or basis of calculating
the rate or rates or amount of interest, (iv) if there is shown on the face of the
Notes of any Series a Final Redemption Amount, Early Redemption Amount,
Optional Redemption Amount, Minimum Rate of Interest and/or a Maximum
Rate of Interest, to reduce such Redemption Amount, Minimum Rate of
Interest and/or such Maximum Rate of Interest, (v) to change the method of
calculating the Final Redemption Amount, the Early Redemption Amount, the
Optional Redemption Amount or the Amortised Face Amount, as the case may
be, in respect of the Notes of any Series, (vi) to change the currency or
currencies of payment of the Notes of any Series or (vii) to modify the
provisions concerning the quorum required at any meeting of Noteholders of
any Series or the majority required to pass the Extraordinary Resolution, in
which case the necessary quorum will be two or more persons holding or
representing not less than 75 per cent., or at any adjourned meeting not less than
25 per cent., in nominal amount of the Notes of the relevant Series for the time
being outstanding ... In the Trust Deed, "Extraordinary Resolution" is defined
to mean a resolution passed at a meeting of holders of Notes of a Series, which
meeting was duly convened and held in accordance with the provisions of the
Trust Deed, by a majority consisting of not less than 50 per cent. of the votes
Information Memorandum, Republic of Argentina, U.S.$20,000,000,000, Medium-Term
Note Programmefor the Issuance of Notes due from 30 days to 30 years from the Date of
Issue 34-35 (2001), at http://www.infoarg.org/docs/2O01-InfoMemo Boilerplate.pdf
[hereinafter Information Memorandum]; see also, e.g., Sovereign Bonds and the Collective
Will, supra note 125, app. at 1361.
135. See Remarks of Michael M. Chamberlin, supra note 111, available at
136. See Republic of Arg., supranote 131.
137. See id. at 1324-25; Information Memorandum, supra note 134, at
(ii) The terms and conditions required to amend a bond issued
under English law are: (a) simple majority or an aggravated
majority (i.e. 75%) as set forth in the terms of the bonds of the
nominal value of each series to adopt resolutions; (b) the
quorum required to amend the payment terms or other clauses
that may affect the payment terms (Categories I and II) will
usually be two or more persons holding or representing not less
than seventy-five percent, or at any adjourned meeting not less
than twenty-five percent of the nominal value of the series; and,
(c) the quorum required to amend any other terms of the bond
that do not affect the payment terms (Category III) will usually
be two or more persons holding or representing not less than
fifty percent of the nominal value of the series.
V. UKRAINE AND ECUADOR DEBT RESTRUCTURING
This section will analyze the use of CACs and exit consent in
the previous sovereign debt restructuring episodes of Ukraine in
1999 and Ecuador in 2000.
Both Ukraine's and Ecuador's debt restructurings dealt with
English law, which includes CACs,'39 and New York law, which
includes Brady Bonds that did not include provisions for the
amendment of the payment conditions (Category I).140 Each of
these debt swaps involved an exchange offer upon which
bondholders were invited to exchange their old bonds for new
ones. 14 1 Ukraine's debt swap is an example of a CAC's debt
exchange. 142 In contrast, Ecuador's debt swap is an example of debt
exchange through the use of exit consent. 43
In Ukraine's debt exchange offer, the consent of the accepting
bondholders included their consent to amend the terms and
conditions of the old debt instruments. 1" Ukraine conditioned the
summoning of a bondholders' meeting to the prior confirmation
138. See, e.g., Sovereign Bonds and the Collective Will, supranote 125, app. at 1361.
139. POLICY DEV. & REV. & LEGAL DEP'TS, supra note 12, at 4, available at
http://www.imf.org/external/pubs/ft/series/O3/IPS.pdf. The applicable law in Ukraine's case
was the law of Luxembourg, according to which the effect of CACs and amendments to
the terms and conditions of bonds is similar to the effect under English Law.
142. See id: at 6.
143. Id. at 11.
144. Id. at 6.
that it had obtained the required percentage to introduce the
proposed amendments to the terms and conditions of the bonds in
default. 45 Once it had obtained the necessary proxies from
bondholders representing the required percentage, according to
terms and conditions set forth in the corresponding prospects, the
bondholders' meeting was called. Ukraine, with the proxies
(representing the required percentage to amend the terms of the
old bonds), amended the terms and conditions of the bonds in
default, and thereby equalized its terms and conditions to those of
the new bonds.4 6
Through CACs, Ukraine was able to introduce amendments
to every term and condition of the bonds in default (payment and
others), making such amendments applicable to the minorities.147
Ecuador, on the other hand, did not have such a possibility and
was forced to use an exchange offer as its only alternative.4
Although Ecuador's bonds did not include CACs to amend
payment conditions, the other terms of the bonds could be
amended through a simple majority because "the bonds did
include provisions that allow bondholders holding a simple
majority of principal, either during a bondholders' meeting or by
written notice, to bind a minority with respect to amendments of
bond clauses other than those regarding payment-such as waiver
of sovereign immunity, submission of jurisdiction, financial
covenants, and listing."'49mIninothriistywtaoy, aitccceoputldsuamchenadmCenatdemgoernytsI.5II0
conditions, forcing the
Ecuador was the first sovereign state to use the exit consent
technique to confront holdouts in an exchange offer where the
original bonds did not include CACs.151
The amendments made to the original terms of the bonds
(i) the requirement that all payment defaults must be cured as a
condition to any rescission of acceleration; (ii) the provision
145. POLICY DEV. & REV. & LEGAL DEP'TS, supra note 12, at 6, available at
148. See id. at 10.
149. Id. at 35.
150. See id.
151. POLICY DEV. & REV. & LEGAL DEP'TS, supra note 12, at 11, available at
that restricts Ecuador from purchasing any of the Brady bonds
while a payment default is continuing; (iii) the covenant that
prohibits Ecuador from seeking a further restructuring of Brady
bonds; (iv) the cross-default clause; (v) the negative pledge
covenant; and (vi) the covenant to maintain the listing
defaulted instruments on the Luxembourg Stock Exchangeo.f51 2the
Following Ukraine's experience, every mandate granted to
Ecuador to amend the terms and conditions of the bonds was
made on an irrevocable basis subject to obtaining the required
majorities to pass such amendments.53
The use of exit consents allowed Ecuador to restructure its
sovereign debt with ninety-seven percent acceptance. The use of
exit consents was vigorously criticized by certain bondholders, who
considered it a coercive mechanism instead of an incentive to
agree to the debt exchange."' Sovereign states, which intend to
force the5 6use of exit consents, might end up being sued by its
In the sovereign debt restructuring episodes, either in the case
of syndicated loans and/or bonds, the market has been able to
come up with a solution without the need of a statutory approach.
There are two available techniques that have already been tested
satisfactorily. Even though Argentina pushed the limits, an orderly
sovereign debt restructuring can be achieved.
The recent Argentina class actions illustrate an intermediate
approach-between a formal statutory approach and a market
driven approach-because to have court supervision, one of the
parties must make the judicial request. Although it might be too
early to make any assumptions, we may be facing the development
of another market-based technique to deal with holdout creditors.
152. Id. at 8.
153. Id. at 35.
155. Remarks of Michael M. Chamberlain, supra note 111, available at
13. Arora & Caminal, supranote 11 , at 630.
14. Id .
15. Id .
16. See Hill E. Fisch & Carolina M. Gentile , Vultures or Vanguards?: The Role of Litigationin Sovereign Debt Restructuring ,52 EMORY L.J. 1043 , 1045 ( 2004 ).
17. See id. at 1045. Holdout or rouge creditors are commonly known as "vulture funds." Id. Vulture funds refer to investment funds that focus on distressed debt . See id. at 1045 n.1.
18. See id. at 1045- 46 . See, e.g., Pravin Banker Assocs . v. Banco Popular del Peru , 109 F.3d 850 ( 2d Cir . 1997 ); Elliott Assocs ., L.P. v. Banco de la Nacion, 194 F.3d 363 ( 2d Cir . 1999 ).
29. Elliott Assocs ., 194 F.3d at 372.
30. N.Y. [Jud.] § 489 ( Consol . 1983 ) ; see also J. Garcia Hamilton , Jr., R. Olivares Caminal & 0. M. Zenarruza , Juicios contra la Reptiblica Argentina, Class Actions y Embargo de Bienes Ptiblicos, in DEFAULT Y REESTRUCTURACION DE LA DEUDA EXTERNA , 2003 LA LEY 137 Supp.
31. ElliottAssocs., 194 F.3d at 372.
32. Id . at 379.
33. John Nolan, Special Policy Report 3 : Emerging Market Debt & Vulture Hedge Funds: Free-Ridership, Legal & Market Remedies, FINANCIAL POLICY FORUM , at http://www.financialpolicy.org/DSCNolan.htm (Sept. 29, 2001 ).
34. See Samuel E. Goldman , Comment, Mavericks in the Market: The Emerging Problem of Hold-Outs in Sovereign DebtRestructurings,5 UCLA J . INT'L L. & FOREIGN AFF . 159 , 196 ( 2000 ).
35. See id. at 196; see also Nolan, supra note 33 , at http://www.financialpolicy.org/ DSCNolan.htm.
36. Nolan , supra note 33, at http://www.financialpolicy.org/DSCNolan.htm.
37. Id .
38. Id .
39. Id .
40. Id .
41. See id.
42. See Nolan, supra note 33 , at http://www.financialpolicy.orgfDSCNolan.htm.
43. LNC Investments, Inc. v. The Republic of Nicaragua, No. 96 Civ. 6360 , 2000 U.S. Dist. LEXIS 7738, at *1 (S.D.N .Y. June 6, 2000 ).
44. Id . at *13.
45. Unilateral order granted by the Vice-president of the Commercial Tribunal of Brussels (Tribunal de commerce de Bruxelles) (R.R . 101 /03) dated July 25, 2003 in re La Republique du Nicaragua vs. LNC Investments LLC et Euroclear Bank S.A. (not reported); Republique Du Nicaragua v . LNC Invs . LLC et Euroclear Bank , No. R.K. 240 /03 [Tribunal de Commerce de Bruxelles] 2003 (Belg.) (on file with author).
46. Republique Du Nicaragua v . LNC Invs . LLC, No. 2003 /KR/334, at 2 ( Cour D'Appeal de Bruselas , Neuvieme Chambre [Ct. App. Brussels, 9th Chamber] 2004 ) (on file with author).
47. Id . at 9.
53. See IMF May Help Bail out Argentina, at CNN .com, http://edition.cnn.com/ 2001/WORLD/americas/12/27/argentina.imf/index. html (Dec. 20 , 2001 ).
54. SEC. EXCH. COMM'N ANN. REP . 2002 , Sec. Exch. Act 1934 , Comm'n No. 1-14278 , [Form 20-F] at 8, at http://www.quinsa.com.ar/quinsanewweb/Financial/annualreporte. html (last visited Jul . 25 , 2005 ).
55. Id .
56. See Dr . Guillermo Nielsen, Speech of the Secretary of Finance: Argentina's Restructuring Guidelines (Sept . 22, 2003 ), at http:/lwww.argentinedebtinfo.gov.ar/ documentos/discursogn dubaicondiap-english. pdf [hereinafter Argentina's Restructuring Guidelines] .
57. Id .
58. See Arora & Caminal, supra note 12, at 664.
59. Dr . Guillermo Nielsen, Presentation Secretary of Finance, Ministry of Economy and Production, Argentina: From Stabilization to Economic Growth (Aug . 2003 ), at http://www.argentinedebtinfo.gov.ar/documentos/europe-presentation -english-august.pdf [hereinafter Argentina: From Stabilization to Economic Growth] .
60. See Arora & Caminal, supra note 12, at 62.
61. Andrew Balls & Adam Thomson, Argentina Defiant Towards Private Creditors , FINANCIAL TIMES , Mar . 11 , 2004 , at 1, availableat 2004 WL 72878019.
62. Argentina 's Restructuring Guidelines , supra note 56 , at http://www.argentinedebtinfo.gov.ar/ing-presen.htm. Fifty-one percent of Argentine debt is subject to New York Law, eighteen percent to UK Law, seventeen percent to German Law, eleven percent to Argentine Law, two percent to Japanese Law, and the remaining one percent to other jurisdictions . Id.
63. See id.
64. See id. More information concerning the Argentine proposal is available at the Argentine Republic's Ministry of Economy and Production website at http://www.mecon.gov.ar/finanzas/basehome/renegociacion-deuda. htm (last visited Jul . 25 , 2005 ).
65. Martin Kanenguiser , La Salida del Default : Se Present6 Oficialmente la Propuesta en Buenos Aires , LA NACION (Jan. 13 , 2005 ), available at http://www.lanacion. com.arl 670761.
66. See id.
67. See id.
68. See Martin Kanenguiser , Se Pagardnlos Interese a los Acreedores en Default, LA NACION LINE (June 1, 2004 ), available at http://www.lanacion.com.ar/herramientas/ printfriendly.asp?origen=3ra& notaid=606669. If the percentage of acceptance exceeded seventy percent, the interest payment period would extend to June 2004, resulting in $22.5 million. See id .
69. See MINISTERIO DE ECONOMiA Y PRODUCCION , OFERTA DE CANJE (Jan . 12, 2005 ), availableat http://www.mecon.gov.ar/basehome/argentina-roadshowpresentationenero 12 2005 _vfinalweb .pdf [hereinafter OFERTA DE CANJE].
70. See Jos6 E. Jorge , La Segunda Oferta: Argentina Renegocia su Deuda en Default , June 2003 , availableat http://www.cambiocultural.com.ar/actualidad/deudab.htm.
71. See Press Release, Comisi6n de Economia, Once Puntos B1sicos sobre la Reducci6n de la Deuda Ptblica del Pafs (June 1, 2004 ), availableat http://www.cai.org.ar/ economia/m-oncepuntos.html [hereinafter Comisi6n de Economfa].
72. See id.
73. See id.
74. Id . This will correspond to $ 104 , 100 ,000 minus $ 60 , 900 ,000 which equals $ 43 , 200 ,000 -the total amount of outstanding eligible debt including interests as of June 30, 2004, minus the write off mentioned in (ii) above . Id.
80. If more than seventy percent of the outstanding debt were to be tendered, then the issuance of par bonds would increase to $15 billion . OFERTA DE CANJE, supranote 69 , availableat http://www.mecon.gov.ar/basehome/argentina-roadshow.presentation-enero12_ 2005 _ v_final web . pdf.
81. Id .
82. Id .
83. See Jorge, supra note 65, available at www.cambiocultural.com.ar/actualidad/ deuda.htm. The quasi par bonds were converted into Argentine pesos (AR$). The conversion rate established was AR$1.40 per each U.S. dollar, or its equivalent in other currency, and was adjusted by an index ratio of debts commonly known as CER (Coeficiente de Estabilizaci6nde Referencia) . See id.
84. See Jorge, supra note 65, available at www.cambiocultural.com.ar/actualidad/ deuda.htm. The quasi par bonds are targeted to the pension funds (AFJPs), which hold twenty percent of the defaulted debt. See id. Moreover, the AFJPs have an old rivalry with the Argentine government due to the mandatory conversion into AR$ of some guaranteed loans . See id.; see generally R. Olivares Caminal , El Principiode SeguridadJuridica en los Canjes de Deuda Pfiblica, 2004 LA LEY , 7 - 12 .
85. OFERTA DE CANJE, supra note 69, available at http://www.mecon.gov. arl basehome/argentina roadshow-presentation enero_12_2005_v final-web .pdf.
86. See id.
87. Id .
88. Id . If more than seventy percent of the outstanding debt were to be tendered, then the issuance of discount bonds will decrease to $18.5 billion.
89. Id .
90. Id .
91. OFERTA DE CANJE, supra note 69, available at http://www.mecon.gov.ar/ basehome/argentina.roadshow -presentation-enero_12_2005_v final web . pdf.
92. Id .
93. Comisi6n de Economia, supra note 71 , available at http://www.cai.org.ar/ economia/oncepuntos.html.
94. Id .
95. This is the authors' interpretation of Argentina's decision not to use the exit consent technique. Memorandum of Law of the Republic of Argentina in Opposition to Plaintiffs' Motion for a Preliminary Injunction, Seijas v . The Republic of Argentina (04 Civ. 400) . Using the exit consent technique would have resulted in a potential increase in the number of exchange offer acceptances. This analysis is based upon the Ecuador and Uruguay restructuring cases . see POLICY DEV & REV. & LEGAL DEP'TS , available at http://www.imf.org/externallpubs/ft/series/03/IPS.pdf (Jan. 24 , 2001 ).
Moreover , on December 3 , 2004 , in London, one of the authors confirmed this
102. See Hamilton , Caminal & Zenarruza, supra note 30, at 135.
103. See supra text accompanying notes 95 & 102 .
104. Hirshon v. Republic of Bolivia , 979 F. Supp . 908 (D.D .C. 1997 ); Carl Marks & Co., Inc. v. Union of Soviet Socialist Republics , 665 F. Supp . 323 (S.D.N .Y. 1987 ).
105. H.W. Urban GmbH v. Republic of Argentina, No. 02 Civ. 5699 (TPG) , 2003 U.S. Dist. LEXIS 23363 (S.D.N .Y. Dec. 30 , 2003 ).
106. Motion for Class Action Certification, H.W. Urban GmbH v . Republic of Argentina, No. 02 Civ. 5699 (TPG) , 2003 U.S. Dist. LEXIS 23363 (S.D.N .Y. Dec. 30 , 2003 ) ( 02 Civ 5699 ).
107. Id .
109. See generally POLICY DEV . & REV. & LEGAL DEP'TS, supra note 12 , availableat http://www.imf.org/external/pubs/ft/series/03/IPS.pdf.
110. Seeid .atll.
111. See id.; see also Michael M. Chamberlain, At the Frontier of Exit Consents, Remarks at the Bear Stearns & EMCA Sovereign Creditors Rights Conference (Nov. 9 , 2001 ), availableat http://www.emta.org/ndevelop/exitcons.pdf.
112. POLICY DEV. & REV. & LEGAL DEP'TS, supra note 12 , at 11, available at http://www.imf.org/external/pubs/ft/series/03/IPS.pdf. The leading case on exit consent is Katz v. Oak Indus., 508 A.2d 873 ( Del. Ch . 1986 ), where the validity and legitimacy of using this technique was recognized in a case of commercial bonds. Subsequently, New York courts have recognized its validity in many cases such as Unigard Security Ins . Co. v. North River Ins. Co., 4 F.3d 1049 ( 2d Cir . 1993 ). In Unigard,the court recognized the argument that the use of exit consent is legitimate because the drafters of the terms and conditions of the bonds issued after the Oak Industriescase did not make any amendments to the contractual terms of the bonds to limit the use of exit consent. Countries which have used exit consent in cases of sovereign debt restructuring include Ecuador and Uruguay .
113. Arora & Caminal, supra note 12, at 632-33.
114. Id .at 633.
115. Id .
116. See id. at 662.
117. See William W. Bratton & G. Mitu Gulati, Sovereign Debt Reform and the Best Interest of Creditors,57 VAND. L. REV. 1 , 4 ( 2003 ).
118. See Arora & Caminal, supra note 12, at 663; see also R. Olivares Caminal, Reestructuraci6n de Deuda Publica: Diferentes Mecanismos, in DEFAULT Y REESTRUCTURACION DE LA DEUDA EXTERNA , 2003 LA LEY 97.
119. See Arora & Caminal, supranote 12 , at 662.
120. See id. at 663.
121. Arora & Caminal, supranote 12 , at 663.
122. See Arora & Caminal, supra note 12, at 665. Argentine sovereign bonds generally do not include CACs, except for only a few issuances in the 1990s, and the bonds subject to English law .
123. See id. at 664-65.
124. Ministerio de Economfa y Producci6n, Lineamientos de Reestructuraci6n de la Deuda Soberana (Sept . 23, 2003 ), available at http://www.argentinedebtinfo.gov.ar/documentos/ dubai-esp- 22 -9.pdf. For purposes of this article, Argentine bonds subject to German law and Japanese law are comparable to bonds issued under New York law and English law, respectively . See Yan Liu, Collective Action Clauses in International Sovereign Bonds (Aug. 30 , 2002 ), available at http://www.imf.org/external/np/leg/sem/2002/cdmfl/eng/ liu.pdf.
125. See , e.g., Lee C. Buchheit & G. Mitu Gulati , Article, Sovereign Bonds and the Collective Will , 51 EMORY L.J. 1317 , app. at 1361- 63 ( 2002 ) [hereinafter Sovereign Bonds and the Collective Will] .
126. See , e.g., id.
127. See id. at 1329.
128. See Remarks of Michael M. Chamberlin, supra note 111, available at http://www.emta.org/ndevelop/exitcons.pdf. Chamberlain used this classification for exit consent but it can also be used to classify amendable clauses of a bond.
129. In the recent case of Argentina's 2001-2002 debt crisis, there were: (i) 152 series of bonds; (ii) governed by eight different laws; and (iii) an estimation that at the moment of the default there were over 700.000 creditors around the globe , mainly in Italy ( 15 .6%), Switzerland (10 .3%), U.S. ( 9 .1%), Germany (5 .1%), Japan (3 .1%), United Kingdom (1 .1%), Netherlands (1%) and Luxembourg (0 .8%). See Ministerio de Economfa y Producci6n, Lineamientos de Reestructuraci6n de la Deuda Soberana (Sept . 23, 2003 ), available at http://www.argentinedebtinfo.gov.ar/documentos/dubai-esp- 22 -9.pdf. Bearing this in mind, it can be said that it is almost impossible to achieve the assistance of all the creditors due to their geographical distribution and, for some, the unwillingness to incur the expense of being represented. Moreover, considering that it is difficult to make all