By Derek Hunter

As Ukraine’s financial and security situation deteriorated, it became clear that it needed additional financial support, which it received through a $17.5 billion loan package from the IMF. However, the terms of the IMF’s package require Kiev to persuade private creditors to accept $15.3 billion in write-offs or deferred payments over four years. Nonetheless, in ongoing negotiations private creditors like Franklin Templeton have refused to take a loss on their Ukrainian bonds and only offered to extend the maturity of the bonds but not write-off any principal payments. As the New York Times reports, Ukraine’s finance minister launched the latest salvo in these negotiations when he warned in a series of interviews in London that private creditors should not “hold out” against a settlement.

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April 27, 2015

By Derek Hunter

When a domestic corporation becomes insolvent – whether in the United States or any other developed country – a detailed set of laws spring into action. In the United States, domestic bankruptcy law supersedes state causes of action, and automatically stays creditor actions against the assets of the debtor. Then, a collaborative process is imposed on the parties in which every creditor will have voting rights, but ultimate decision-making rests with a neutral judge. Congress and the courts are continually honing the bankruptcy process, but the need for such a process has been evident for at least a century. 

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April 20, 2015

By Derek Hunter

In September, Chinese e-commerce giant Alibaba listed on the New York Stock Exchange with great fanfare, sending its IPO price up 67% since. If you thought that excitement was overblown, well, you were wrong. This week more Alibaba news is dominating Wall Street: first, Alibaba is planning a massive $8 billion bond offering, and second, U.S. hedge funds’ required quarterly disclosures reveal that every big name money manager from Daniel Loeb to George Soros has taken a huge stake in Alibaba. Seems like Alibaba must be the investment of the century, since all of Wall Street never gets an investment wrong.

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December 03, 2014

By Evan Abrams

The global financial crisis of 2007-08 may have begun in the private sector, but it quickly spread to the public sector as well, with countries like Greece, Portugal, and Italy making headlines for months. The crisis exposed these countries’ inability to finance their debt and left the specter of a Eurozone breakup battering financial markets across the world. Argentina has also made news of late due to its long running legal battle with so called “vulture funds.” The situation with Argentina is not that they are unable to pay their debts, but that they are unwilling to reward holdouts from an earlier restructuring after its 2001 default. These holdouts claim they are simply trying to recover what they are contractually owed. However, developing countries view such recalcitrant creditors as taking advantage of economic crises and undermining nations’ recovery efforts in the wake of financial turmoil.

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November 07, 2014

By Ena Cefo

U.S. investors, headed by hedge funds NML and Aurelius Capital Management, are suing Argentina in U.S. courts for full payment on their Argentine government bonds totaling US$1.3 billion. The investors bought Argentine bonds for low prices after Argentina’s 2001 default, when the bonds were at a dramatic low. Argentina defaulted on its debt after the investors rejected a widely accepted bond restructuring agreement. The UN Human Rights Council’s resolution condemned the activities of the so called “vulture funds” and warned against the effect of payments to such “vulture funds” on the deterioration of human rights conditions in South American countries such as Argentina.

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October 27, 2014

By Derek Hunter

In mid-2012, many experts were betting that the Eurozone would fall apart -- southern European countries couldn’t access retail bond markets, and northern European countries were not prepared to help. But Mario Draghi, the president of the European Central Bank (ECB), vowed to do “whatever it takes,” and announced the Outright Monetary Transactions program, where the bank would buy large volumes of the government bonds of distressed countries. Now, several German plaintiffs are arguing before the European Court of Justice that “whatever it takes” was actually illegal, and beyond the scope of the ECB’s power.

The Wall Street Journal discusses the legal issues in the case, and how a ruling against the ECB could jeopardize current programs.

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October 22, 2014

By Joe Vladeck

The European Securities and Markets Authority (ESMA) has sharply criticized credit ratings agencies for downgrading the sovereign debt of European nations. 

The effect of sovereign debt downgrades "can be significant," said ESMA chief Steven Maijoor. Some observers have suggested that the downgrades made the ongoing European financial crisis worse than it otherwise would have been. Among other critiques, ESMA suggested that the ratings agencies were compromised by interest conflicts and did not act independently.

As Bloomberg's Matt Levine points out, ESMA's criticism is puzzling. In the private-sector, private bond issuers pay ratings agencies to issue ratings, creating incentives for ratings agencies to give bonds high ratings (in the hopes of securing more business in the future). But sovereign debt issuers don't pay ratings agencies to issue bond ratings. ESMA contorts itself to describe the conflict in different terms, but ends up with accusations that are, in Levine's words, "pretty weird." While credit agencies have rightfully taken a share of the blame for the global financial crisis, this particular critique seems misplaced. 

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December 05, 2013