The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

Uruguay closes the loop

One key clause in Uruguay's proposed collective action clauses closes a loophole that Mexico left open in its own bonds: the question of whether the issuer could use exit consents on the payment terms of bonds with CACs. Exit consents, even on non-payment terms of bonds, are generally considered coercive and rather bad manners, even if a necessary evil for countries seeking to restructure their bonds.

Exit consents are used when a country is trying to get bondholders to switch out of a set of old bonds and into a set of new bonds. The country forces anybody making the switch to vote in favour of severely weakening the safeguards that were built into the old bonds. Since the switchers aren't going to hold any of the old bonds any more, such a vote doesn't affect the people who vote for it: it only affects those left behind. If the exit consents get enough votes (normally two-thirds or half), the holdouts in any exchange offer are left with illiquid instruments lacking basic protections such as a sovereign immunity waiver.

If there are CACs in a country's bonds, however, it can make exit consents much worse, by asking participants in an exchange offer to strip holdouts not only of their listing on the Luxembourg bourse, say, but also of their coupon and principal payments.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree