Some New York lawmakers are planning legislation designed to blunt hedge funds’ ability to resist sovereign-debt restructurings, while easing financial settlements for government borrowers in distress, WSJ Pro Bankruptcy reported. New York state Sen. Gustavo Rivera and Assemblywoman Maritza Davila, both Democrats, plan to introduce legislation as soon as this week to allow a supermajority of a nation’s creditors to amend or restructure its debt contracts and bind any dissenters that could otherwise hold out. Many sovereign bonds in Latin America, Africa, and other emerging markets contain collective-action clauses that require all creditors to honor agreements that a majority of them make with the borrower. But others lack any such mechanism, leaving no ready way for settlements made with majority support to become binding on all members of a creditor class. This means that financial investors can buy distressed sovereign debt at a discount, then refuse to accept a restructuring negotiated by other creditors, push for a higher recovery and possibly litigate for full repayment. A small number of determined bondholders led by Paul Singer’s Elliott Management Corp. refused to go along with other investors when Argentina restructured its debts after a 2001 default. These holdouts later sued Argentina in the U.S. and won court rulings blocking payments to other creditors and locking Argentina out of credit markets. In 2016 the country settled the dispute at significant cost, handing huge profits to Elliott and the other holdouts.
