Third Progress Report on Inclusion of Enhanced Contractual Provisions in International Sovereign Bond Contracts

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In October 2014 the IMF Executive Board endorsed inclusion of key features of enhanced pari passu provisions and collective action clauses (CACs) in new international sovereign bonds.
The Executive Board endorsement specifies:
- (i) a modified pari passu provision that explicitly excludes the obligation to effect ratable payments, and
- (ii) an enhanced CAC with a menu of voting procedures, including a “single-limb” aggregated voting procedure that enables bonds to be restructured on the basis of a single vote across all affected instruments, a two-limb aggregated voting procedure, and a series-by-series voting procedure.
Directors supported an active role for the IMF in promoting inclusion of these clauses.
The IMFC and the G20 called on the IMF to promote the use of such clauses and report on their inclusion.

Since the Executive Board’s endorsement, the IMF has published periodic progress reports on inclusion of the enhanced clauses.
Key findings from these reports:
- Approximately 85 percent of new international sovereign bond issuances since October 2014 (in nominal principal amount) included the enhanced clauses.
- There was no observable market impact on inclusion of the enhanced clauses.
- The outstanding stock without the enhanced clauses remained significant, and issuers showed little appetite for liability management exercises to accelerate turnover.

This paper provides an update on inclusion of the enhanced clauses and on the outstanding stock of international sovereign bonds as of September 30, 2017.
Findings reported in Section II:
- The vast majority of issuers are including the enhanced clauses, with only a few countries standing out against the market trend.
- While the percentage of the outstanding stock with the enhanced clauses is increasing, a significant percentage of the stock still does not include them.
- Little action has been taken by issuers to increase the rate of turnover of the outstanding stock without the enhanced clauses.

Section III briefly reports on the use of different bond structures (as described in the paper).
Section IV describes IMF staff’s ongoing outreach efforts and next steps to promote inclusion of the enhanced clauses.

Third Progress Report on Inclusion of Enhanced Contractual Provisions in International Sovereign Bond Contracts, December 15, 2017.