Protecting Against Sovereign Defaults

Norbert Gaillard

Chapter Chapter 2 in When Sovereigns Go Bankrupt, 2014, pp 13-22 from Springer

Abstract: Abstract Chapter 2 analyzes the various means used by creditors to mitigate sovereign risk well in advance – that is, when countries issue bonds, sign loan agreements, or are at an early stage of their borrowing cycle. Section 2.1 looks at sovereign bond and loan covenants: it presents the clauses that enable creditors to enforce contracts, secure repayment flows, avoid subordination, neutralize the risk of repayment on unfavorable terms, obtain specific guarantees, and make debt renegotiations easier once a default has occurred. The main provisions studied here are the choice of law, arbitration, currency, pari passu, and collective action clauses (CACs) as well as pledges, negative pledges, and “inflation-proof” clauses. Section 2.2 addresses the various insurance and insurance-like instruments that investors can rely upon to hedge against default risk; these include sovereign risk insurance covenants, contracts of guarantee offered by multilateral agencies, and credit default swaps (CDSs).

Keywords: Sovereign immunity; Collective action clauses; Pari passu; Hedging; Insurance contracts (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:spbchp:978-3-319-08988-1_2

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DOI: 10.1007/978-3-319-08988-1_2

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