Sovereign Debt Restructuring: the Judge, the Vultures and Creditor Rights

What role did the US courts play in the Argentine debt swap of 2005? What are the implications for the future of creditor rights in sovereign bond markets? The judge in the Argentine case has, it appears, deftly exploited creditor heterogeneity – between holdouts seeking capital gains and institutional investors wanting a settlement – to promote a swap with a supermajority of 76% of creditors. Our analysis of Argentine debt litigation reveals a process of 'judge-mediated' sovereign debt restructuring, which resolves the key issues of Transition and Aggregation - two of the roles envisaged for the IMF's still-born Sovereign Debt Restructuring Mechanism (SDRM). For the future we note how the judge-mediated sovereign debt restructuring, together with creditor committees, may complement the market-based alternative promoted by the Treasury, namely collective action clauses (CACs) in sovereign bond contracts.