Role played by legal
clauses like the collective action clause and the pari passu in sovereign debt
issuances
Anytime a default on payments takes
place, what follows is the debtor entering into talks with the creditors to
restructure the debt obligation. The collective action clause imposes
reorganizational terms to all creditors that are similar. The reorganizational
terms must, however, be agreed upon by a specific percentage of lenders from 75%
to 90%. The collective action clauses prevent the small number of creditors
(25% and below) from blocking the restructuring. The pari passu on the other
hand calls for equal treatment for all creditors. The clause, therefore,
ensures that there are no preferences to some creditors over the others (pg.
231).
The difference between
vulture funds and a typical hedge funds investing in sovereign debt.
The typical hedge fund purchases a
substantial amount of the distressed corporation hence becoming an integral
part of the saving of the company from plunging into dissolution. However,
hedge funds investing in sovereign debt take the model of vulture fund where
they have made the buying and selling of the traded distressed debt a form of
business. Through this, they are able to make supernormal returns within a very
short period. The same time it would take to fall into financial distress.
However, firms like Gramercy protect themselves from falling by using credit
default swaps (CDSs) (pgs. 232- 234).
Alternatives for
resolving the crisis.
The crisis where the country is unable
to pay its debts is as a result of the adverse effects of vulture fund
activities. Therefore, before any restructuring of the legal debts, the country
should make changes which will ensure that there are adequate regulations of
the vulture fund activities. The country should have an independent body that
assesses debt sustainability in the country and comes up with other strategies
for resolving the issue rather than relying on the vulture fund alone (Kanaga).
Additional articles
Use scientific style (e.g., no jargon or colloquial expressions, avoid contractions). Express ideas succinctly. For example, don’t say “at the present time†when you coul...Polishing-Your-Essay-Draft …
Read ArticleIn the book “A Rose for Emily,†Emily Grierson is the main character who is both headstrong as well as rigid. The readers are able to perceive this through the various events that unfold in the story. The character that Emily plays is an inte...Comparison-of-characters--"A-Rose-for-Emily" …
Read ArticleUSA consumer regulation dates back to few centuries. The history shows struggle for America to free themselves into a social and free regulation of their own markets and industries. One of the commissions formed in 1887, The Interstate Commercial...The-History-of-Consumer-Regulation-in-the-USA …
Read Article