Changes to LatAm bond clauses raise market hackles
By Davide Scigliuzzo
NEW YORK, March 6 (IFR) - Mexico and other Latin American sovereigns have been omitting four key words from the collective action clauses in new bond issues - and that is ruffling the feathers of major bond investors.
Standard language in collective action clauses recommended by industry groups - and intended to ensure an equal payout to all - has been tweaked in several recent bond issues.
The omission of the words "on the same terms" in the CACs seems to have been only belatedly noticed by some investors, and has now caused a stir among more than a few buy-side players.
"The removal of that language is extremely concerning," Aaron Kim, a senior vice-president at bond fund giant Pimco, told an industry conference this week.
The CACs themselves were designed by the International Capital Markets Association and given the stamp of approval by both the IMF and the G20.
Essentially, they are intended to avoid a repeat of the legal quagmire enveloping Argentina, whose bonds have been the subject of a years-long court battle waged by disgruntled creditors in which so-called holdout creditors are demanding more of a payout than was agreed to by those that accepted the restructuring of the bonds
The CACs aim to prevent a minority group of bondholders from holding up payments to others, and spell out that any restructuring can go ahead with 75% approval from investors, binding in any dissenting creditors in the process.
As promoted by ICMA, the CACs say that all bondholders must be repaid "on the same terms" - the four words whose omission in some new bond issues has raised eyebrows in the market. Continuación...