>>The Paris Club is often harder than the LC, because it has a "comparable
>>treatment" clause, which prevents a borrower from giving any other
creditor
>>a better deal than that which is given to the Paris Club (as the Germans
>>are currently pointing out in relation to Russia, debtors can give non-PC
>>creditors a worse deal, but not a better one). This effectively creates
a
>>creditors' cartel and gives the PC a degree of leverage. The London
Club,
>>since it has more members and less permanent resources, has nothing like
>>the same amount of cartel power.
>I thought bank debt typically had clauses preventing debtors from
>playing creditors off against each other - is "negative pledge" the
>jargon? An injury to one (creditor) would be seen as an injury to all.
Cross default is the one you're thinking of -- it's related to but weaker than comparable treatment. (Negative pledge is a promise not to create new obligations senior to the debt covered by the negative pledge). A cross-default clause is typically inserted into sovereign lending, and says that an act of default on any obligation is /de jure/ an act of default on all obligations covered by the negative pledge. It's meant to stop things like maintaining payment on eurobonds while stiffing the bank lenders.
Comparable treatment doesn't really have an exact equivalent for private creditors. When companies borrow, comparable treatment is not an issue, because a company in default is, /ex hypothesi/ not able to privilege one creditor over another, because it's in the hands of the receivers (warning: that's a *huge* oversimplification -- check a good bankruptcy textbook under "preferences" for full treatment).
A sovereign is a bit different, however, because the "management" (ie government) is still in place even if the debt is in default. And there's no way to enforce any sort of "no preferential treatment" clause, because you can't sue a sovereign unless it allows you to. The only threat the capital markets have is to declare an act of default, which they've already done. This is why the comparable treatment clause is a PC thing, because other states have the ability to enforce it.
Actually, in default negotiations for sovereigns, preferences are regularly given to "nuisance creditors" in order to stop them from using their powers of veto to stop a solution from ever being reached. The Dart Family Trust is a case in point (I think).
>Back in the 80s, it seemed like Citibank's William Rhodes and a
>handful of sidekicks would handle the negotiations. Are things
>different now with more bond, and less bank, debt?
I'm writing on this right now (no, honest, I promise). My guess is that the Russia crisis (plus aspects of Indonesia) suggest that the "impossibility" of negotiating with a million anonymous bearer bondholders is more apparent than real. What you end up getting is a "creditors' committee" of market makers, with the two biggest MMs in the chair. Once this committee has decided on a restructuring, then anyone else can try to hold out for more, but they're unlikely to be listened to, and the borrower will be back in the markets with no incentive to co-operate further. Even Credit Suisse (one of Russia's biggest single creditors) wasn't able to hold out for a better deal once Chase and Deutsche had agreed to the GKO restructuring.
dd
>Doug
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