In her paper "Restructuring Sovereign Debt Under Local Law: Are Retrofit Collective Action Clauses Expropriatory?", Melissa Boudreau ’13 discusses the legality of a mandate to retrofit certain contract provisions (specifically collective action clauses) into local law bonds, which constitute the vast majority of Greece’s debt – precisely what the Greek legislature is in the process of implementing. Drawing on an extensive set of international and domestic materials, Boudreau evaluates whether passage of the mandate would create an opportunity for disgruntled creditors to bring successful lawsuits in American courts – and concludes that it likely does not. Her paper also has implications for litigation that might be brought elsewhere in the Eurozone. (Read the working paper on SSRN.)
In his paper, "Disenfranchisement in Sovereign Bonds," Keegan Drake JD/MBA’14 explores the implementation of collective action clauses (CACs) in actual contracts, rather than legislatively mandated contract provisions. Based on analysis of hundreds of foreign-law sovereign bond contracts, Drake finds that some sovereign debt instruments allow a government to vote to modify its own contract terms and reduce its obligations to private creditors. Further, he finds that even when contracts do restrict such debtor self-voting, those restrictions do not take into account the complications of a monetary union such as the Eurozone, where other countries’ governments and their central banks can also vote to reduce the debt obligations of a fellow nation. (Read the working paper on SSRN.)
The papers are relevant for Greece, noted Professor Mitu Gulati, because the nation has both local-law governed bonds and foreign-law governed bonds. "Greece has to plan and implement restructurings of both types of bonds over the next few weeks," he said.
"Both of these papers are valuable additions to the literature on sovereign debt," said Gulati, who works in the area of sovereign debt and advised Drake and Boudreau in their independent study projects on the topic. (See this piece in The New York Times in which Gulati discusses the relevance of CACs to the new Greek legislation). The legislation Boudreau addresses marks the first time in the history of international sovereign lending that collective action clauses have been retroactively inserted into bonds, he noted, adding that "the Greek experience with both its foreign and domestic law bonds has relevance for other countries in the Eurozone, such as Portugal, that also face crises."
Gulati credited the students for producing excellent and relevant scholarship. "They worked extremely hard on difficult and contentious questions and did much more work than I could reasonably have asked of them," he said. "I'm especially happy that many of their classmates unselfishly contributed to reading their drafts, critiquing them and helping them improve the final papers. It is superb work."