![Paul Singer, chief of the hedge fund Elliott Management.](https://webarchive.library.unt.edu/dentonfracking/20141113191235im_/http://graphics8.nytimes.com/images/2014/11/13/business/dbpix-paul-singer2/dbpix-paul-singer2-articleInline.jpg)
Take that, Paul Singer!
No one expects Mexico to restructure its debt anytime soon. But if it ever does, so-called vulture investors like Mr. Singer’s Elliott Management will find it much harder to crash the debt restructuring party – as they have done so successfully in Argentina – thanks to tough new provisions written into the contracts of new bond issues for the country.
This week, the Mexican government made a United States securities filing for an issue of bonds that would include new, improved collective action clauses specifically written to keep holdout investors like Mr. Singer at bay.
Vulture investors will be required to accumulate a much larger position in order to block a debt restructuring agreement by the majority, and the dreaded pari passu clause – which holds that all investors be treated equally – has been stripped of much of its power.
Debt restructuring gurus are jumping for joy, with Anna Gelpern at Georgetown calling the foray by Mexico “the iPhone 6″ of debt restructuring contracts.
Mr. Singer and other vulture investors were able to buy enough Argentine bonds over the years to make the case – in New York courts – that Argentina must make interest payments to them even though they did not participate in any of the debt restructuring agreements struck by the majority of investors.
Argentina has resisted and debt experts have said that these legal victories will make it harder for future debt restructuring agreements to be reached as investors will be incentivized to hold out for better deals.
The new push by sovereign bond issuers dovetails with an ambitious plan being put forward by the International Monetary Fund that aims to make future debt restructurings easier to manage.
As such, the fund has been working with the International Capital Market Association, a trade body that represents bond investors, to create bond contracts that make it harder for holdout investors to accumulate enough bonds to make themselves a nuisance.
While many have hailed the Greek debt restructuring in 2012 as a triumph of sorts, fund officials did not like that holdout investors who owned foreign law bonds were paid 100 cents on the euro compared with the majority of investors who experienced haircuts of as much as 70 percent.
Moreover, experts worry that if a heavily indebted country like Portugal or Italy were forced to restructure its debt, the holdout problem would persist because the majority of the debt that has been issued by these countries is governed by local law and lacks the tough collective action clauses that Mexican bonds and newly issued European bonds carry.