Large investment banks, central banks, bond investors and asset managers have joined forces to propose a new framework that aims to negate complicated disputes such as the fight over Argentina's default earlier this year.
The International Capital Market Association (ICMA) represents around 450 institutions located in 52 countries and includes members from Goldman Sachs, Morgan Stanley and Citibank. It has published revised and updated proposals to facilitate future sovereign debt restructuring which contain a plan to introduce collective action clauses (CACs).
These CACs would allow a majority of bondholders to agree to changes in the bond terms in the event of a default. Holders of the debt could extend the maturity, for example, and any changes would be legally binding on all holders of the bond. This means that those who voted against the restructuring would still be obliged to follow the changes that are agreed upon.
The proposals hope to provide a practical solution to the problem of blocking minorities and also shed more detail on the "pari passu" clause which it says had brought about uncertainty in the Argentine default case. Pari passu or equal footing refers to equal treatment of all parties affected.