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Samurais come to the rescue

Uruguay is seeking to push out the maturities on its bonds to give it time to get its economy back in shape before having to repay its foreign debt. It's doing this by means of one huge exchange offer, with which it is trying to swap all of its outstanding bonds for similar bonds of longer maturity.

All its outstanding bonds? Not quite. There's one bond - a Japanese yen samurai issue - that isn't included in the deal. The samurai bond already has collective action clauses, so on May 15, the deadline for the exchange offer, a meeting of its bondholders will be called. If more than half of them turn up, that's a quorum; if more than two-thirds of those vote in favour of amending the payment terms, then the deed is done. As little as one-third of bondholders, theoretically, could change the coupons on this debt. (These CACs are a lot more issuer-friendly than the ones that Uruguay is putting in its new dollar bonds.)

It's good that Uruguay is not including its CAC bond in the exchange offer. For one thing, Mexico has been telling anybody who will listen that having CACs means never having to do an exchange offer: if Uruguay disproved Mexico's assertion almost immediately, that would not reflect well either on Mexico or on Cleary, Gottlieb, Steen&Hamilton, the law firm that advises both states.