Walling Out Those Movie-Fan Freeloaders
AllAboutAlpha | Aug 14, 2012 03:25AM ET
Since bankruptcy is not available for sovereign nations, exit consents have become a critical means by which sovereigns can restructure. That fact is behind much of the keen attention now directed at Assenagon Asset Management S.A. v. Irish Bank Resolution Corp.
In certain circumstances, a bond issuer must persuade all the holders to accept an exchange of bonds for replacements with less onerous terms. Exit consent is a strategy for doing this by inviting holders to make the exchange, with the proviso that they must commit to vote on a resolution that will cripple the hold-outs in some respect. The crippling resolution won’t actually change the payment terms on the held out bonds, but it can often change other terms that significantly devalue the instrument in other ways.
As The Hon. Mr. Justice Briggs put it in his decision in Assenagon, July 27, 2012, “[A] holder who fails to offer his bonds for exchange and either votes against the resolution or abstains takes the risk, if the resolution is passed, that his bonds will be … devalued by the resolution or, as in this case, destroyed by being redeemed for a nominal consideration.”
The Death of Drive-Ins
In a well-known American precedent, Credit Slips ). After all, if there is one dependable fact about this second decade of the 21st century, it is that banks and sovereigns will continue to search for flexibility, for some way to reconcile their desire to retain access to the credit markets with their periodic inability to pay their old debts. That reconciliation requires some finagling, or the creation of some walls around their movie screen.
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