## ppea2025034

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### EXECUTIVE SUMMARY — recent developments and scope
- COVID-19 fiscal support led to a significant increase in government deficits and debt; general government debt levels have stabilized but risks remain elevated.
- Financing flows from private creditors to sovereigns declined significantly after 2021, with aggregate flows recovered by 2024.
- Within the official sector the share of multilateral debt increased from 21 percent in 2019 to 24 percent in 2023.
- Paper covers developments from June 2020–2025, staff calculations are illustrative and based on information available at the time of writing; LICs refer to PRGT-eligible countries.
- Staff will continue monitoring developments as part of its ongoing work program.

### Recent developments in sovereign debt markets
- Domestic sovereign debt:
  - EMs: domestic debt accounted for three quarters of total debt at end-2024.
  - LICs: domestic debt accounted for 35 percent of the total at end-2024 (down from 37 percent in 2020).
- External creditor composition and instruments:
  - EMs: about two-thirds of external public debt from private creditors at end-2023, predominantly bonds.
  - LICs: private creditors accounted for 20 percent at end-2023, split between bonds and commercial loans.
- International bond market:
  - Total international bond issuances by EMDEs returned to pre-COVID levels by 2024.
  - Average tenor of new issuances by EMDEs has decreased since 2021 and not fully reversed.
  - Coupon rates peaked at close to 10 percent for issuers below BB- rating in 2022.
  - Dominant jurisdictions of issuance: New York and the UK; issuance in Chinese and Japanese markets remained limited.

### Sovereign debt restructurings since 2020 — timing, outcomes, complexity
- Eight countries underwent restructurings with private creditors since the 2020 stocktaking; some cases remain ongoing.
- Restructurings since 2020 have been longer and more complex than prior cases, often requiring both official and private creditor relief and sequential approaches.
- Average duration and post-default incidence:
  - Average duration for the 8 recent cases: 2.5 years (vs 1.1 years in 2020 paper).
  - High share of post-default restructurings: 73 percent in 2020-24.
- Debt relief outcomes:
  - Six external bond restructurings (Belize, Ghana, Sri Lanka, Suriname, Ukraine, Zambia) had face value reductions ranging from 22 percent in Zambia to 45 percent in Belize.
  - NPV reduction using exit yields ranged from –4.7 (Chad) to 54 percent.
  - Market haircut using exit yields ranged from –3 (Chad) to 64 percent.
  - Average NPV haircut for recent cases: 36 percent (vs 23 percent in 2020 paper).
- Market re-access:
  - New sovereign bond yields in 2020-24 ranged from 5.5% (Zambia) to 16% (Ukraine) with 10% on average.
  - Market re-access remains a challenge; for cases since 2020 it is too early to judge.

### Contractual framework for private debt — bonded vs non-bonded
- Bonded debt:
  - Contractual framework remains effective for bonded debt; enhanced CACs facilitated restructurings with very high creditor participation and only one holdout case.
  - Uptake of enhanced CACs is very high in new issuances under English or New York laws.
  - Approximately 79 percent of the total stock of outstanding international sovereign bonds include enhanced CACs as of end-June 2025 (about 50 percent as of end-June 2020).
  - Since June 2020, 74 sovereigns made 561 international bond issuances, total nominal principal US$720 billion (as of end-June 2025). New issuance breakdown (June 2020–June 2025): 98% with enhanced CACs, 2% without enhanced CACs.
- Non-bonded debt:
  - Contractual framework less effective; MVPs have not been widely adopted and are limited to syndicated loans.
  - Restructurings of non-bonded external loans (Ghana, Sri Lanka, Suriname, Zambia) were lengthier and more difficult; remaining unrestructured non-bonded debt can delay rating upgrades.
  - Key obstacles: diverse creditor/instrument types, limited coordination among non-bonded creditors, lack of CAC-analogues, limited debt transparency.
- Emerging contractual features:
  - Increasing use/emergence of SCDIs, LRCs, and MFC clauses; these can facilitate restructurings but carry costs and design trade-offs.
  - Creditors pushing for information provision obligations in new instruments; these impose costs on sovereign capacity and resources and should be tailored.
- Statutory approaches:
  - Existing legislative tools in UK, Belgium and France remain unused; proposals under consideration in other jurisdictions.
  - Legislative tools could complement contractual approaches in certain circumstances but require careful design and a high bar.

### Credit enhancements — collateral and guarantees
- Collateral:
  - Syndicated loans with credit enhancements increased sharply for EMs as Eurobond issuances declined.
  - LICs: in 2024, 80 percent of commercial loans contracted by LICs had some form of credit enhancement.
  - Reports of repo/swap transactions collateralized with sovereign’s own bonds; overall collateralized sovereign debt increased though bulk remains uncollateralized.
  - Example: Angola entered into a US$1 billion one-year sovereign total return swap from JPMorgan.
- Guarantees:
  - Limited number of bonds/loans benefited from official sector or IFI guarantees, including in debt swap operations.
  - Example: Ghana issued a US$1 billion Eurobond with partial PBG of US$400 million by IDA; the 2030 Eurobond defaulted and was included in restructuring; World Bank made a final payment of US$212 million pro rata to guaranteed bondholders, creating a corresponding claim on Ghana.

### Uptake of enhanced contractual provisions (CACs, MVPs, CRDCs)
- Enhanced CACs:
  - Widely adopted since 2014 endorsement; about 79 percent of outstanding international sovereign bonds include enhanced CACs (end-June 2025).
  - Sukuk: since June 2020, 20 sovereign sukuks issued totaling close to US$25.5 billion; most sukuk issuers include enhanced CACs with a single-limb aggregated voting option; Malaysia adopted only the double-limb voting option.
  - About 49 percent of existing bonds without enhanced CACs are set to mature over the next 10 years; 60 percent of those are categorized as below investment grade.
- MVPs:
  - Not widely adopted; market feedback indicates lack of significant first mover and prevalence of bilateral loans.
- CRDCs:
  - Growing uptake; UK Export Finance and certain MDBs announced inclusion in loan agreements.
  - Commercial examples in 2024: Barbados loan facility BDS$592.7 million and Commonwealth of The Bahamas US$300 million included CRDC provisions in debt-for-climate swap transactions.
  - Barbados issued bonds with CRDC provisions in June 2025 with no evident adverse pricing effect in reporting.

### Loss Reinstatement Clauses (LRCs) — design, empirical cases, and risks
- Purpose and function:
  - Allow bondholders to increase principal upon certain events (e.g., payment/moratorium EoD) to “reset” negotiations and restore nominal claims.
  - Relevant where official creditors provided relief via maturity/interest changes rather than principal writedowns.
- Empirical snapshot (USD Million and percent):
  - Ghana:
    - Baseline case original debt relief (A): 4,644
    - New principal amount (B): 9,402
    - Principal increase from LRC (C): 4,829
    - (C)/(A): 104 (in percent)
    - (C)/(B): 51 (in percent)
  - Sri Lanka:
    - Baseline case original debt relief (A): 3,051
    - New principal amount (B): 10,962
    - Principal increase from LRC (C): 3,031
    - (C)/(A): 99 (in percent)
    - (C)/(B): 28 (in percent)
  - Zambia:
    - Baseline case original debt relief (A): 807
    - New principal amount (B): 3,083
    - Principal increase from LRC (C): 850
    - (C)/(A): 105 (in percent)
    - (C)/(B): 28 (in percent)
- Design issues and systemic impacts:
  - Broad triggers (including information obligations or cross-defaults) may trigger LRCs even when sovereign can still service bonds.
  - Automatic acceleration can remove bondholder discretion to waive activation.
  - Risk of diluting future creditors and potential upward pressure on borrowing costs.
  - Interaction with official CoT assessments unclear; no LRC has been triggered in practice to date.
- Specific case features and numeric elements:
  - Activation thresholds: Ghana at least 25%; Sri Lanka at least 20%; Zambia and Ukraine: automatic acceleration (N/A threshold).
  - Ghana cut-off date: Dec 31, 2032.
  - Zambia cut-off (effective period): Up to final disbursement under current ECF Arrangement (current Availability Date: October 1, 2025).
  - Sri Lanka Governance-Linked Bonds cut-off: Nov 30, 2028.
  - Principal increase specifics:
    - Ghana: 37% of principal amount plus accrued interest (up to end-Dec 2023) of existing notes exchanged for Disco New Notes.
    - Zambia: 62.25% increase in nominal amount of B Notes plus US$622.50 per US$1,000 in nominal amount immediately due and payable.
    - Sri Lanka: 37% of aggregate outstanding amount of New International Bonds plus 12.5% of aggregate outstanding amount of PDI Bonds (as of Loss Reinstatement Event).
    - Ukraine: notional interest specification 7.43% from issue date to Loss Reinstatement Date; aims to place bondholder as if exchange did not occur.

### Most Favored Creditor (MFC) clauses — operation and design trade-offs
- Operation:
  - Sovereign agrees not to pay or reach a better recovery agreement with other creditors unless participating creditors are “topped up”; creates strong incentive against providing better recoveries to future restructuring creditors.
- Design challenges:
  - Defining excluded creditors or groups (e.g., certain IFIs, new/emerging lenders).
  - Defining recovery comparisons: measurement dates and discount rates vary (official sector using 5 percent for LIC-DSF countries; MFC clauses often using 12–14 percent).
  - Enforcement costs: invoking MFC likely precipitates further restructuring; enforcement trade-offs for bondholders.
- Interplay with CoT:
  - CoT requirements from official creditors remain a key determinant of intercreditor equity; MFC provides bondholders an enforcement mechanism complementing CoT.

### Debt transparency and information provision obligations
- Importance:
  - Greater debt transparency aids CoT assessments and accelerates restructurings; low transparency hinders comparable treatment assessments and delays outcomes.
- Contractual inclusion:
  - Sovereign bonds typically lack information provision obligations; creditors seek such clauses especially where SCDIs and MFCs are used.
  - Obligations impose sovereign capacity and resource costs and can create Event of Default consequences if unmet.
- Case variation summary (selected):
  - Ghana: information on MFC: Yes; broader debt data: Public Debt Information; remedies: Event of Default; publication semi-annually covering aggregate external indebtedness and list of agreements.
  - Zambia: information on SCDI: Yes; broader debt data: Public Debt Information; remedies: Event of Default; publication during Relevant Period on SCDI trigger information.
  - Sri Lanka: information on SCDI and MFC: Yes; broader debt data: Public Debt and Guaranteed Public Debt with semi-annual investor calls; remedies: only failure to publish info on SCDI triggers Event of Default.
  - Ukraine: information on SCDI: Yes; MFC: No; broader debt data: No; remedies: Event of Default.
- Publication and investor call mechanics differ by case; effect of non-compliance ranges from Event of Default to limited consequences depending on instrument and reporting.

### Creditor coordination and sequencing (SECTION IV)
- Observed sequencing:
  - Domestic debt restructurings were concluded prior to external creditor agreements in Ghana and Sri Lanka.
  - OSI before PSI: many cases required official sector relief before private sector engagement (Republic of Congo, Chad, Ghana, Sri Lanka, Suriname, Zambia).
  - Bonds were often restructured before other commercial claims (non-bonded creditors).
- Key coordination issues:
  - Information sharing: private creditors lamented insufficient early sharing of macro-framework and DSA; guidance published for IMF/World Bank staff on information sharing (IMF 2023b; IMF 2024b).
  - Perception of “fait accompli” when OSI sequencing precedes PSI; flexibility exists in modalities and parallel processes are feasible but capacity-constrained.
  - CoT scrutiny: OCC comparability assessments have been central and sometimes resulted in OCC rejection of creditor agreements (example: Zambia October 2023 rejection).
- Options to accelerate restructurings:
  - Parallel OSI and PSI processes, debtor-convened meetings early in process, engagement with OCC co-chairs and private sector at key points.
  - Constraints: OCC must still make CoT assessment; fully parallel frameworks with contingency mechanisms have been proposed by commentators.

### Domestic debt restructurings (Annex I) — Ghana and Sri Lanka cases and other DDRs
- Ghana and Sri Lanka DDRs (2023):
  - Domestic debt accounted for over half of total sovereign debt pre-DDR in both cases; maturities shortened and T-bills became primary financing.
  - DDRs aimed to restore fiscal sustainability while preserving financial stability; mitigants included financial stability funds and emergency liquidity arrangements consistent with IMF 2021b recommendations.
  - Duration: Ghana 0.75 years; Sri Lanka 1.3 years.
  - Weighted average NPV reduction: Ghana 32 percent; Sri Lanka 12 percent.
  - Sequencing: DDRs completed prior to external restructuring; not implemented via retroactive domestic law CACs.
  - Post-DDR market functioning: net domestic financing needs remained positive; T-bill issuance costs surged; Ghana had not resumed bond issuances as of 3Q2025 due to a “Limitation on Future Issuances” clause (three-year restriction).
- Other DDRs since 2020 (selected):
  - El Salvador (May 2023): exchange with private pension funds, prolonged maturities up to 50 years, new coupon 7 percent.
  - Argentina (2022–2024): peso-debt exchanges to push out maturities, participants largely public-sector entities; transactions classified as distressed by S&P.
  - Republic of Congo (October 2024): CFA franc exchange ~25 percent of GDP; upfront fee 1–3 percent; BEAC risk-weighting 0 percent.
  - Gabon (April 2025): local-currency exchange ~5.4 percent of GDP; some exchanges backed by resources-linked escrow accounts; Moody’s classified as distressed.

### Litigation, enforcement, and payment-interruption risks
- Creditor litigation has generally not impeded successful restructurings in 2020–2025; only one holdout litigation during restructurings (Hamilton Reserve Bank v. Sri Lanka).
  - Hamilton Reserve Bank v. Sri Lanka: plaintiff held roughly US$250 million; stays granted multiple times; discovery authorized in April 2025; case pending.
- Enforcement examples:
  - Guatemala (November 2020): restraining notice froze New York accounts; resulted in missed coupon payment and subsequent settlement.
  - Ecuador (July 2022): Luxembourg arrest/attachment orders on Ecuador accounts; settled on December 22, 2022.
- Legal-structural mitigation:
  - Trust structures (bond trustees) generally provide stronger protection against attachment than fiscal agency agreements; majority of New York law bonds use trustees, fewer English-law bonds do.
  - Switching to trust structures increases issuer costs.
- Implications:
  - Sovereigns should monitor litigation trends and consider issuance and custody structures to mitigate payment-interruption risks.

### Fund role, policies, and programmatic work going forward
- Fund role:
  - Endorsed contractual framework including enhanced CAC features in 2014; has lending policies that incentivize restructuring and policies on information sharing (IMF 2024b).
  - Can facilitate contractual framework operation, information sharing with private creditors, and use “good offices” to convene meetings at debtor’s request.
  - Staff does not “negotiate” the DSA with creditors; DSA underpins financing decisions and staff should explain DSA assumptions consistently.
- Work program:
  - Implementing/updating Fund guidance on sovereign debt policies; policy review scheduled for 2027 (FY28).
  - Engage with initiatives developing contractual features (e.g., London Coalition) and support GSDR work on creditor coordination.
  - Review/provide guidance and software on LIC-DSF and SRDSF for SCDI use.
  - Strengthen debt management capacity and technical assistance to support information provision clauses and debt transparency.

### Selected key statistics preserved exactly
- 21 percent → 24 percent: multilateral debt share increase from 2019 to 2023 (official sector).
- EMs: domestic debt = three quarters of total at end-2024.
- LICs: domestic debt = 35 percent of total at end-2024 (down from 37 percent in 2020).
- 80 percent: share of commercial loans contracted by LICs with credit enhancement in 2024.
- 74 sovereigns; 561 international bond issuances; total nominal principal US$720 billion (since the 2020 paper; as of end-June 2025).
- 79 percent: share of outstanding international sovereign bonds including enhanced CACs (as of end-June 2025).
- 50 percent: share of total stock that included enhanced CACs as of end-June 2020.
- 49 percent: share of existing bonds without enhanced CACs set to mature over the next 10 years.
- 60 percent: share of bonds without enhanced CACs categorized as below investment grade.
- 98% / 2%: new issuance with enhanced CACs vs without (between June 2020 and June 2025).
- 20 sovereign sukuks since June 2020; total nominal principal close to US$25.5 billion.
- LRC case numeric figures:
  - Ghana: (A) 4,644; (B) 9,402; (C) 4,829; (C)/(A) 104 (percent); (C)/(B) 51 (percent).
  - Sri Lanka: (A) 3,051; (B) 10,962; (C) 3,031; (C)/(A) 99 (percent); (C)/(B) 28 (percent).
  - Zambia: (A) 807; (B) 3,083; (C) 850; (C)/(A) 105 (percent); (C)/(B) 28 (percent).
- LRC design specifics preserved:
  - Ghana LRC cut-off date: Dec 31, 2032.
  - Zambia LRC effective period linked to final ECF disbursement: current Availability Date October 1, 2025.
  - Sri Lanka Governance-Linked Bonds cut-off: Nov 30, 2028.
  - Ghana LRC activation threshold: at least 25%.
  - Sri Lanka LRC activation threshold: at least 20%.
  - Zambia and Ukraine LRC activation: N/A (automatic acceleration).
  - Ghana principal increase: 37% of principal amount plus accrued interest (up to end-Dec 2023).
  - Zambia principal increase: 62.25% plus US$622.50 per US$1,000.
  - Sri Lanka principal increase: 37% of New International Bonds plus 12.5% of PDI Bonds.
  - Ukraine notional interest: 7.43%.
- Typical grace periods for LRCs: 7 – 15 days for principal payments; 30 days for interest payments.
- Domestic DDR outcomes:
  - Ghana DDR duration: 0.75 years; weighted average NPV reduction: 32 percent.
  - Sri Lanka DDR duration: 1.3 years; weighted average NPV reduction: 12 percent.
- New sovereign bond yields 2020-24: range 5.5% to 16% with 10% on average.

*Source: ppea2025034 (A Stocktaking of the International Architecture for Resolving Private Sector Sovereign Debt — International Monetary Fund, excerpts).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Recent Developments in Sovereign Debt Markets
- The COVID-19 pandemic necessitated extraordinary fiscal support, leading to a significant increase in government deficits and debt.
- General government debt levels have stabilized, but risks remain elevated.
- Financing flows from private creditors to sovereigns declined significantly after 2021, though aggregate flows had recovered by 2024.
- Domestic sovereign debt levels have increased.
- Within the official sector there has been a shift from bilateral to multilateral financing, with the share of multilateral debt increasing from 21 percent in 2019 to 24 percent in 2023.
- Sovereign domestic debt trends:
  - In EMs, domestic debt accounted for three quarters of total debt at end-2024.
  - In LICs, domestic debt accounted for 35 percent of the total, slightly down from 37 percent in 2020.
- External creditor composition and instrument mix:
  - In EMs, about two-thirds of the external public debt was from private creditors at end-2023, predominantly in the form of bonds.
  - In LICs, private creditors accounted for 20 percent at end-2023, equally distributed between bonds and commercial loans.
- International bond market developments:
  - Total international bond issuances by EMDEs returned to pre-COVID levels by 2024 after a significant drop during 2022-23.
  - The average tenor of new international bond issuances by EMDEs has decreased since 2021 and has not yet fully reversed.
  - Coupon rates peaked at close to 10 percent for issuers below BB- rating in 2022.
  - Dominant jurisdictions of issuance have continued to be New York and the UK.
  - EM sovereign bonds issued in the Chinese market remained small; EM issuances in the Japanese market also remained limited.

### Sovereign Debt Restructurings Since 2020
- Since the Fund’s 2020 stocktaking, 8 countries have undergone debt restructurings with private creditors, with some cases still ongoing.
- Recent sovereign debt restructurings have taken longer compared to the 2020 stocktaking and have been more complex, though they have delivered substantial debt relief so far.
- Restructuring of sovereign domestic debt continues to involve complex macro-financial trade-offs.
- Many recent restructurings required debt relief from both official and private creditors, and a sequential approach has contributed to lengthy outcomes.
- Coordination between official sector creditors and private sector creditors is becoming more agile with experience, though further progress is needed.
- Official creditors have committed to enhanced transparency and information sharing, but room for improvement remains.

### Developments in the Contractual Framework for Private Debt
- Bonded debt:
  - The contractual framework remains effective for bonded debt.
  - Enhanced collective action clauses (CACs) have effectively facilitated international bond restructurings, delivering very high creditor participation rates and only one case of a holdout.
  - There continues to be a very high uptake of enhanced CACs in new issuances under English or New York laws, covering a vast majority of international bond issuances, although uptake is not as high under the laws of other jurisdictions.
- Non-bonded debt:
  - The contractual framework has been less effective in resolving non-bonded debt.
  - Certain contractual provisions, such as majority voting provisions (MVPs), can be helpful but have not been widely adopted and are not a comprehensive solution.
  - Better coordination and information sharing among creditors appears necessary for non-bonded debt.
  - Collateral or collateral-like arrangements have hampered restructurings in a few cases.
- Emerging contractual features:
  - Increased use or emergence of state-contingent debt instruments (SCDIs), loss reinstatement clauses (LRCs), and most favored creditor (MFC) clauses.
  - These clauses can help facilitate and speed up restructurings but present both costs and benefits and require careful, tailored use.
  - Creditors have pushed for inclusion of information provision obligations in new instruments to improve debt transparency; such clauses impose costs on sovereign resources and capacity and should be carefully tailored.
- Statutory approaches:
  - Statutory approaches have not changed since the 2020 stocktaking, though proposals are under consideration in some jurisdictions.
  - Existing legislative tools in the UK, Belgium and France remain in place but have not been used.
  - New legislative initiatives have been proposed in key jurisdictions.
  - Legislative tools could in certain circumstances complement the contractual approach, but a high bar must be met given the need to weigh costs and benefits and to design tools carefully.

### Fund Role, Policies, and Facilitation
- The Fund endorsed the contractual framework for resolving sovereign debt problems, including key features of enhanced contractual provisions for international sovereign bonds in 2014.
- The Fund has specific lending policies which incentivize the restructuring process and policies on information sharing in the context of sovereign debt restructurings.
- The Fund can facilitate the smooth operation of the contractual framework, including information sharing between the Fund and private creditors.
- The Fund has a “good offices” role that can be utilized to facilitate informational flow and coordination both between the debtor and its creditors and among creditors.

### Process, Analysis, and Organization of the Paper
- The note covers developments from June 2020–2025 and provides observations and challenges from recent sovereign debt restructurings involving private sector creditors (PSI).
- Sections of the paper include: evolution of the sovereign debt landscape; experience from recent restructurings; creditor coordination and sequencing; developments in the contractual framework (including SCDIs, LRCs, burden sharing features, debt transparency, and legislative tools); and staff analysis and conclusions.
- Staff calculations in the paper are based on information available at the time of writing and are subject to assumptions; calculations are for illustrative purposes and should not be used as the basis for legal or investment decisions.
- LICs refer to the IMF's Poverty Reduction and Growth Trust (PRGT)-eligible countries.

*September 19, 2025 — EXECUTIVE SUMMARY, A Stocktaking of the International Architecture for Resolving Private Sector Sovereign Debt*

### 8. There has also been an increase in the use of credit enhancements – collateral (or

### 8. There has also been an increase in the use of credit enhancements – collateral (or collateral-like arrangements) or guarantees

### Credit enhancements: collateral and collateral-like arrangements
- Collateral. 
  - Syndicated loans with credit enhancements increased sharply for EMs as Eurobond issuances declined.
  - In LICs, the share of loans with credit enhancements was high in most years during the period under review; in 2024, 80 percent of commercial loans contracted by LICs had some form of credit enhancement (Figure 4).
  - There have been reports of countries entering into repurchase agreement (repo) or swap transactions, which are often collateralized with their own bonds.
  - Overall, collateralized sovereign debt has also increased in recent years, although the bulk of sovereign borrowing remains uncollateralized.
  - Example transaction referenced: Angola entered into a US$1 billion one-year sovereign total return swap transaction from JPMorgan.
- Guarantees.
  - A limited number of bonds and loans from private creditors to sovereigns have benefited from guarantees provided by official sector entities, including IFIs.
  - Official sector guarantees have also been provided in the context of “debt swap” operations, which involve buybacks of privately held debt with proceeds of new financing that has the benefit of an official sector credit enhancement, conditional on nature, climate, or development-related policy actions and/or investments.
  - Where official sector guarantees are provided and called, a private claim (arising from the bond or loan) transforms into a bilateral or multilateral claim by the official sector guarantor against the sovereign; significant amounts of the latter may complicate restructurings.
  - Example: Ghana issued a US$1 billion Eurobond which benefitted from a partial Policy Based Guarantee (PBG) of US$400 million by the World Bank Group’s IDA; the 2030 Eurobond eventually defaulted and was included in Ghana’s debt restructuring perimeter. As part of Ghana’s September 2024 bond exchange, the World Bank made a final payment of US$212 million distributed pro rata among all guaranteed bondholders; the payout created a new corresponding claim on Ghana by the World Bank.

### Uptake of enhanced contractual provisions (CACs, MVPs, CRDCs)
- Enhanced CACs.
  - Since the Fund’s endorsement of key features of enhanced CACs in October 2014, almost all new international sovereign bond issuances have included such clauses.
  - Since the 2020 paper, 74 sovereigns have made 561 international bond issuances, for a total nominal principal amount of US$720 billion. As of end-June 2025:
    - Most of the new issuances were governed by English or New York laws and included enhanced CACs. The small remainder under Japanese and Chinese laws broadly do not include enhanced CACs.
    - Most sovereign issuers of sukuk now include enhanced CACs with a single-limb aggregated voting option.
    - Approximately 79 percent of the total stock of outstanding international sovereign bonds include enhanced CACs, as opposed to about 50 percent as of end-June 2020.
    - About 49 percent of the existing bonds without enhanced CACs are set to mature over the next 10 years, with 60 percent categorized as below investment grade.
    - Almost all international sovereign bonds include some form of CACs.
  - Prior research found sovereign bond issuances did not show any adverse pricing difference due to inclusion of enhanced CACs.
  - Figures presented indicate new issuance with enhanced CACs: 98% with enhanced CACs, 2% without enhanced CACs (between June 2020 and June 2025).
  - Since June 2020, 20 sovereign sukuks have been issued in international capital markets with a total nominal principal amount close to US$25.5 billion. Sukuk issuers including enhanced CACs: Bahrain, Egypt, Indonesia, Maldives, Oman, Pakistan, Saudi Arabia, Türkiye, and UAE. Malaysia adopted only the double-limb voting option of the enhanced CACs.
- Majority Voting Provisions (MVPs).
  - While loan agreement terms remain largely non-public, feedback from market participants indicates that MVPs have not been adopted.
  - Possible reasons: lack of a significant first mover, greater use of bilateral rather than syndicated loans, or creditor reluctance to limit voting power.
- Climate Resilient Debt Clauses (CRDCs).
  - There has been a growing uptake of CRDCs.
  - In the official sector, UK Export Finance first announced during COP27 in 2023 that they would introduce CRDCs into their loan agreements.
  - Certain multilateral development institutions have announced the inclusion of CRDCs in their loan agreements (including the African Development Bank Group, the European Bank for Reconstruction and Development, the Inter-American Development Bank and the World Bank).
  - Commercial loan market examples in 2024:
    - Barbados: loan facility for BDS$592.7 million included CRDC provisions in the context of a debt-for-climate swap transaction.
    - Commonwealth of The Bahamas: loan facility for US$300 million included CRDC provisions in the context of a debt-for-climate swap transaction.
  - Eurobond market example:
    - Barbados became the first issuer to issue bonds with CRDC provisions in June 2025; the inclusion of CRDC provisions did not seem to have an adverse impact on pricing based on available reporting.
  - Prospects for wider adoption of CRDCs are unclear; recent initiatives have also considered broader “debt pause clauses.”

### Definitions and expert-group work (Box 1 summary)
- Collective Action Clauses (CACs).
  - Allow a majority of creditors within—or across—series of bonds to bind the minority to restructuring terms.
  - Current “enhanced CACs” menu: series-by-series voting, two-limb aggregated voting, single-limb aggregated voting.
  - Voting thresholds: Series-by-Series 75% (per series); Two-limb aggregated 66⅔% (aggregate), 50% (per series); Single-limb 75% (aggregate).
  - Fund endorsed key features of enhanced CACs in 2014; pari passu provisions were also endorsed.
- Majority Voting Provisions (MVPs).
  - Allow a specified majority of creditors within a loan to bind the minority to restructuring terms (specimen provisions proposed a threshold of 75%, by value measured by reference to principal).
  - Expert group convened between 2021-2022 by the United Kingdom developed standardized MVPs; specimen clauses published by ICMA and LMA.
- Climate Resilient Debt Clauses (CRDCs).
  - Allow automatic deferral of debt payments following severe shocks; terms tailored to each transaction and broadly meant to be NPV-neutral.
  - An expert group convened between 2021-2022 by the United Kingdom developed a model term sheet for CRDCs in sovereign bonds; the term sheet has been published by ICMA.
  - Broader “debt pause clauses” initiatives include the London Coalition on Sustainable Sovereign Debt and the Debt Pause Clause Alliance launched by the Sevilla Platform for Action.

### Key statistics and case notes (selected)
- 80 percent: share of commercial loans contracted by LICs with some form of credit enhancement in 2024.
- 74 sovereigns; 561 international bond issuances; total nominal principal amount US$720 billion (since the 2020 paper; as of end-June 2025).
- 79 percent: approximate share of the total stock of outstanding international sovereign bonds that include enhanced CACs (as of end-June 2025).
- 50 percent: approximate share of total stock that included enhanced CACs as of end-June 2020.
- 49 percent: share of existing bonds without enhanced CACs that are set to mature over the next 10 years.
- 60 percent: share of bonds without enhanced CACs categorized as below investment grade.
- 98% / 2%: breakdown of new issuance with enhanced CACs vs without (between June 2020 and June 2025).
- US$1 billion: Angola sovereign total return swap (one-year) with JPMorgan (example).
- BDS$592.7 million: Barbados loan facility including CRDC provisions (2024).
- US$300 million: Commonwealth of The Bahamas loan facility including CRDC provisions (2024).
- June 2025: Barbados first issuer to issue bonds with CRDC provisions.
- 20 sovereign sukuks issued since June 2020 with total nominal principal close to US$25.5 billion.

*Source: ppea2025034 (IMF).*

### 12. While the sample size is small, several key trends have emerged:

### ppea2025034 - 12. While the sample size is small, several key trends have emerged:

### Duration and timing of restructurings
- Average duration of restructurings for the 8 recent cases was 2.5 years, compared to 1.1 years for restructurings in the cases reviewed for the 2020 paper (Table 2).
- A high share of post-default restructurings (73 percent) in 2020-24; many recent restructuring cases took place following a default.
- Factors contributing to longer durations:
  - Majority of recent cases were post-default rather than pre-default.
  - Impact of the pandemic and its aftermath.
  - Increased complexity involving both official sector and private sector creditors (domestic and external; bonded and non-bonded).
  - Delays in official sector processes that delayed private sector restructurings.
  - Wider use of new contractual clauses requiring time.
  - Involvement of collateralized (or collateral-like) arrangements which hampered restructurings.

### International bond restructurings and CACs (collective action clauses)
- Five recent restructurings of international sovereign bonds used a mix of the two-limb voting and series-by-series voting mechanisms and all achieved very high rates of creditor participation (Table 3).
- Single-limb voting mechanism has not yet been used to date.
- Selected participation results from Table 3:
  - Suriname: 92.48% of the 2023 notes and 97.29% of the 2026 notes.
  - Ghana: 98.7% for aggregated voting thresholds, with over 50% consent for each of the aggregated series; 3 unaggregated series received 92.4%, 97.4% and 98.7% consents.
  - Zambia: 94.96%, 92.10% and 96.03% consents for the 2022, 2024 and 2027 notes respectively.
  - Ukraine: Over 97.38% of consents under the aggregated voting thresholds, with 95% to 98.87% for each individual series of notes; a minimum participation condition of 67% of the aggregate principal amount of all outstanding notes was included.
  - Sri Lanka: Over 96% of aggregated notes; 3 series obtained consents at very high levels of 96-99%; the 2022 bond series subject to litigation did not meet the requisite 75% threshold; a minimum participation condition of 90% of the aggregate principal amount of all outstanding notes was included.
- Note: Series-by-series voting did not preclude high participation, though creditors could assemble a blocking position in one series in Sri Lanka.

### Restructuring of external commercial (non-bonded) loans
- Restructurings of non-bonded external debt (Ghana, Sri Lanka, Suriname, Zambia) have been lengthier and more difficult; agreement has not been reached with all creditors some time after completion of external bond exchanges.
- Remaining unrestructured non-bonded debt in Ghana, Sri Lanka, and Suriname is relatively small, but has delayed upgrades to sovereign credit ratings.
- Key obstacles in restructuring non-bonded debt (Box 2):
  - Diverse nature of creditors and instruments (banks, Chinese commercial banks, commodity traders, suppliers, private credit, institutions like Afrexim); instruments vary from purely commercial claims to ECA-insured loans; lender of record may have sold or sub-participated exposures.
  - Limited coordination among non-bonded creditors, unlike bondholder creditor committees; coordination challenges compounded by sales/sub-participations; bilateral negotiations are time-consuming and costly.
  - Lack of contractual features analogous to CACs to bail-in residual creditors; MVPs have not been broadly adopted and only facilitate syndicated loans, whereas many commercial loans are bilateral.
  - Lack of debt transparency: terms of non-bonded debt are not usually public, hindering restructurings and raising concerns about preferential treatment.

### Collateralized debt complications
- Collateralized borrowing lowers borrowing costs but can hamper restructurings and has complex welfare implications.
- Examples of complications:
  - Chad and the Republic of Congo: loan agreements complicated by cash sweep clauses, exclusive off-take arrangements, or collateral on natural resources company’s shares.
  - Malawi: collateral to Afrexim has slowed progress where the stock of secured debt is relatively high.
- Collateral complicates restructurings because secured creditors have weaker incentives to negotiate and can demand more favorable terms; authorities may prioritize repaying collateralized obligations, shifting burdens to unsecured lenders and affecting burden sharing and intercreditor equity.

### Domestic debt restructurings and macro-financial trade-offs
- Domestic debt restructurings in Ghana and Sri Lanka:
  - Immediately before restructuring, domestic debt accounted for over half of total sovereign debt; maturities shortened as bond auctions were suspended, monetary financing increased, and the sovereign-bank nexus tightened.
  - Restructurings aimed to restore debt sustainability and macroeconomic stability while preserving financial stability and protecting vulnerable savers.
  - Mitigating measures included establishment of financial stability funds and emergency liquidity arrangements to restore liquidity and capital positions of impacted financial institutions, consistent with IMF 2021b recommendations.
  - Terms were designed to be consistent with the financial system’s loss absorptive capacity, broadly preserving capital and liquidity buffers; pension funds received smaller haircuts than banks, primarily via maturity extensions.
  - Zambia decided not to restructure domestic debt after assessing financial stability implications.
  - Ghana and Sri Lanka did not use domestic law to aggregate domestic debt instrument holders (did not retrofit domestic debt with CACs); T-bills issued at high real interest rates remained main domestic financing instruments during and after domestic restructurings.

### Debt relief outcomes and market re-access
- Restructurings delivered substantial debt relief under the baseline.
  - Six external bond restructurings (Belize, Ghana, Sri Lanka, Suriname, Ukraine, Zambia) had face value reductions ranging from 22 percent in Zambia to 45 percent in Belize (Table 2).
  - Loan restructurings also involved significant principal reductions (except Chad).
  - NPV reduction using exit yields ranged from –4.7 (Chad) to 54 percent.
  - Market haircut using exit yields ranged from –3 (Chad) to 64 percent (Figure 6).
  - Overall, the average NPV haircut for recent cases was 36 percent, higher than the 23 percent for cases reviewed in the 2020 paper (Table 2).
- Market re-access has remained a challenge after restructurings for cases in 2014-20; for cases since 2020 it is too early to judge.
- New sovereign bond yields in 2020-24:
  - Range from 5.5% (Zambia) to 16% (Ukraine) with 10% on average (Table 2).
  - Yields are affected by bond features (coupon, maturity) and expectations of contingent payments embedded in some bonds.

### Creditor litigation and enforcement actions
- Creditor litigation and enforcement actions have generally not impeded successful restructurings in the past five years.
- Hamilton Reserve Bank v. Sri Lanka was the single case where a creditor filed legal action during a restructuring; the plaintiff held roughly US$250 million of a single series of Sri Lankan Eurobonds.
  - The court granted several stays on litigation until the exchange of remaining bonds was concluded.
  - At Sri Lanka’s request the judge granted a temporary stay in November 2023, which was extended four times until January 31, 2025.
  - In April 2025 the court granted Sri Lanka’s request to seek discovery to determine beneficial ownership of the bond. The case remains pending.
- The small number of holdout litigation cases reflects the difficulty of enforcing judgments against a sovereign and demonstrates the value of stays to facilitate restructurings, though the ability to obtain stays is case- and jurisdiction-specific.
- Outside restructuring contexts, several sovereign debt-related litigations and arbitrations have been initiated since 2020 (Annex II); some resulted in judgments, but successful attachments of sovereign assets have been few, underscoring the costly and uncertain nature of judicial sovereign debt enforcement.
  - In instances involving Ecuador and Guatemala, preliminary injunctions blocked interest and principal payments on sovereign bonds, with settlements following; court attachment orders that disrupt payment streams can pose risks to the debtor and certain creditors and challenge overall debt resolution.

*Source: ppea2025034, A Stocktaking of the International Architecture for Resolving Private Sector Sovereign Debt (excerpt).*

### SECTION IV. CREDITOR COORDINATION AND

### SECTION IV. CREDITOR COORDINATION AND SEQUENCING

### Sequential approach observed in recent restructurings
- Domestic debt first:
  - The two significant domestic debt restructurings in Ghana and Sri Lanka were concluded prior to reaching agreements with external creditors.
  - CoT has not, in practice, been expected from domestic creditors (including the limiting case where external debt is restructured while domestic debt is not).31
- OSI before PSI:
  - Restructurings in the Republic of Congo, Chad, Ghana, Sri Lanka, Suriname, and Zambia required debt relief from both official and private creditors to restore debt sustainability.
  - Authorities focused on reaching a restructuring agreement first with official creditors before turning to private creditors.
  - PSI is more likely to take place without accompanying OSI when the relative share of private creditors is higher (example cited: Ecuador and Argentina in 2020).
  - Incentives for pursuing OSI first include the need to secure financing assurances for the approval of an IMF-supported program, and concerns that an early PSI agreement may need to be re-opened once the OSI agreement is reached.
- Bonds before other commercial claims:
  - The restructuring of non-bonded commercial debt followed the restructuring of external bonds in Ghana, Sri Lanka, Suriname, and Zambia.
  - There is little to no coordination between bondholders and non-bonded creditors, given obstacles to restructuring non-bonded debt and the difficulty of coordinating among non-bonded creditors (Box 2).

### Official–private coordination: key issues identified
- Information sharing:
  - Private creditors have regretted the lack of information sharing early in the process on the macro-framework and DSA that underpin the assessment of the debt relief envelope, although recognition exists that the process has improved with recent cases.
  - The Fund and the World Bank published guidance to staff on information sharing in the context of sovereign debt restructurings, covering what can be shared and with whom at different stages (IMF 2023b; IMF 2024b).
  - Private creditors emphasized lack of information sharing by OCCs on the terms of their debt relief agreement and how the CoT assessment is performed; currently that information is only shared with advisors under a non-disclosure agreement (NDA), creating inefficiencies in private creditor processes.32
  - Recently, official creditors committed to enhanced transparency and information sharing regarding the restructuring agreements reached by OCCs, with a growing consensus among GSDR participants that publication by OCCs of the key terms of the restructuring once an agreement is reached.33
- Room to negotiate:
  - Market participants argue that OSI-PSI sequencing can give rise to a perception that private creditors are presented with a “fait accompli”.
  - Once OSI treatment is agreed, PSI is often the main remaining means to achieve the envelope of relief needed to restore debt sustainability, though the flexibility to determine modalities to deliver that envelope is broad and outcomes would not necessarily differ if OSI and PSI progressed in parallel.
- Comparability of Treatment (CoT) assessments:
  - CoT requirements have been common historically,34 but recent cases involved much closer scrutiny of proposed agreements.35
  - Example: In Zambia, the OCC rejected an agreement reached in October 2023 between the authorities and bondholders on the basis that this agreement did not respect the CoT requirement set out in the OCC MoU.36

### Sequencing consequences and delays
- Longer OSI processes:
  - Because private creditor agreements took place only after significant progress with official creditors, delays in the OSI process lengthened the entire debt restructuring process.
  - The rising role of non-traditional official bilateral creditors has made OSI processes more complex and lengthier, though timelines have significantly improved with each successive treatment.37
- Longer PSI processes:
  - Inefficiencies in information flows hamper the ability to structure PSI terms that meet CoT requirements, risking further delays (e.g., if the PSI terms are rejected by the OCC).
- Longer restructuring processes increase uncertainty:
  - High macroeconomic uncertainty in a debt crisis can lead to significant revisions and updates of macroeconomic projections as the Fund arrangement proceeds, complicating negotiations and enabling delaying tactics.
  - Creditors have introduced complex contractual clauses to manage such uncertainties; specification of such clauses can add to timelines.

### Options to accelerate restructurings: parallel processes and enhanced convening
- Parallel processes:
  - Debtor authorities may choose to run PSI and OSI processes in parallel, though sovereigns may prefer sequential approaches due to limited capacity to conduct parallel negotiations.
- Debtor-convened meetings and early engagement:
  - Recent GSDR discussions supported the idea of a debtor convened meeting of official bilateral and private creditors early in the process, and engagement with OCC co-chairs and members of the private sector at key points (GSDR 4th Cochairs Progress Report; GSDR Compendium).
  - Such engagement could strengthen information sharing, enhance official–private coordination and support parallel negotiations.38
- Constraints:
  - The OCC will still have to make a CoT assessment, even where negotiations with private sector and official sector creditors occur at the same time.
  - Some commentators have suggested moving towards a fully coordinated framework where OSI and PSI run fully parallel, with a contingency mechanism enabling “a decision to accept an offer by one committee to be made contingent on the acceptance by the others.” See Hagan and Setser, 2024.

*Source: ppea2025034 - SECTION IV. CREDITOR COORDINATION AND SEQUENCING*

### 23. Loss Reinstatement Clauses (LRCs) have been used sparingly historically, but have

### 23. Loss Reinstatement Clauses (LRCs) have been used sparingly historically, but have

### Overview of Loss Reinstatement Clauses (LRCs)
- LRCs have historically been used sparingly and generally in countries that have undergone multiple restructurings (see Annex III).
- Function: Allow holders of restructured bonds to increase the principal amount of their debt claims upon occurrence of certain events likely to result in a subsequent restructuring (e.g., a payment or moratorium event of default).
- Purpose: Provide private creditors the chance to “reset” negotiations should a subsequent restructuring occur; maintain the share of private creditors’ claims vis-à-vis official creditors by restoring the nominal value of bondholders’ claims to the pre-restructuring state.
- Relevance: Particularly relevant in restructurings with a significant share of official debt where official creditors delivered relief through maturity extensions and interest rate reductions, not writedowns of principal.
- Caveat: Even if LRCs are triggered, the amount of recovery that private creditors receive depends on other factors such as the payment capacity of the borrower and DSA targets, rather than the nominal amount of the debt.

### Empirical snapshot (Table 4: Original Principal Reduction and Possible Principal Loss Reinstatement)
- Source: Invitation memoranda and staff calculations. (Note: Figures for Ukraine’s LRC are not included.)
- Country-specific figures (USD Million and percent):
  - Ghana
    - Baseline case original debt relief (A): 4,644 (USD Million)
    - New principal amount (B): 9,402 (USD Million)
    - Principal increase from LRC (C): 4,829 (USD Million)
    - Principal increase from LRC/debt relief (C)/(A): 104 (in percent)
    - Principal increase from LRC/New principal (C)/(B): 51 (in percent)
  - Sri Lanka
    - Baseline case original debt relief (A): 3,051 (USD Million)
    - New principal amount (B): 10,962 (USD Million)
    - Principal increase from LRC (C): 3,031 (USD Million)
    - Principal increase from LRC/debt relief (C)/(A): 99 (in percent)
    - Principal increase from LRC/New principal (C)/(B): 28 (in percent)
  - Zambia
    - Baseline case original debt relief (A): 807 (USD Million)
    - New principal amount (B): 3,083 (USD Million)
    - Principal increase from LRC (C): 850 (USD Million)
    - Principal increase from LRC/debt relief (C)/(A): 105 (in percent)
    - Principal increase from LRC/New principal (C)/(B): 28 (in percent)

### Design issues and systemic impacts of LRCs
- Trigger breadth and consequences:
  - Recent LRCs have included triggers that go beyond sovereign debt servicing ability (e.g., linked to information obligations or cross-defaults).
  - Broad triggers may result in LRCs being triggered even when the sovereign may still be able to service the bonds.
  - Triggering that results in automatic acceleration of the bonds can leave no room for bondholders to waive activation.
- Potential dilution and market effects:
  - Risk of diluting future (new) private creditors because LRCs increase principal of initial exchange bonds, reducing proportional claims of new creditors.
  - Could be theoretical if LRC life is relatively short (e.g., corresponding to the length of a Fund arrangement).
  - Potential impact could be reflected in higher borrowing costs (IMF 2005), though borrowers can refinance LRC bonds with proceeds of new issuances.
- Interaction with official-sector comparability (CoT) issues:
  - Unclear how LRCs will interact with CoT issues regarding official creditors; triggered LRCs entail reversal of all or part of bondholder-provided debt relief, possibly posing similar CoT challenges for official creditor debt relief.
  - Limited attention and discussion so far, particularly because no LRC has yet been triggered in practice.
- Ukraine-specific note:
  - Ukraine’s LRC restores not just pre-restructuring nominal amount but aims to place the bondholder in exactly the same position as if the exchange did not take place and the original bonds remained in default up to the LRC trigger date; this may reflect idiosyncratic circumstances in Ukraine’s restructuring.

### Contractual features relating to burden sharing: Most Favored Creditor clauses (MFCs)
- Trend:
  - MFCs have been increasingly utilized.
- Definition and operation:
  - Sovereign issuer agrees not to pay or reach an agreement with other creditors at a later date that provides better recoveries for such creditors unless they “top up” the participating creditors.
  - Practically, “top up” entails additional financial costs on the sovereign, creating strong incentive not to give better recovery to future restructuring creditors.
  - Recent MFC clauses focus on commercial creditors who restructure after the bondholders and are seen as less cooperative or having greater leverage.
- Challenges in specification:
  - Defining excluded creditors or groups.
  - Defining recovery comparisons (measurement date, discount rates).
  - Enforcement mechanisms and costs.
  - No history yet of recent MFC versions triggering or related litigation.
- Relationship with official CoT requirement:
  - CoT requirement from official sector creditors remains a key determinant of intercreditor equity.
  - In many situations, CoT may be sufficient to prevent overly favorable recoveries to other commercial creditors.
  - MFC provides bondholders an enforcement mechanism separate from official creditors.

### Issues in designing MFC clauses (Box 4) — selected points
- Defining the creditors excluded:
  - New and emerging lenders: question whether certain new and emerging lenders (with mix of sovereign and/or non-sovereign members) should be excluded.
  - Example: Ghana included “IFIs” which lend exclusively on non-concessional terms or do not provide net new financing to Ghana in the MFC clause; claims of such entities must be settled on comparable terms as participating creditors.
  - Litigation: Sri Lanka excludes payments due to final court judgments to address ongoing litigation (Hamilton Bank); tension between holdout recoveries and compliance with court judgments.
- Addressing recovery comparisons:
  - MFC compares recovery percentages measured by past and future cashflows divided by total claim on a present value basis; clauses differ across cases in measurement dates.
  - Some clauses designed to become less binding over time.
  - Discount rate differences: official sector uses 5 percent for LIC-DSF countries (and multiple rates for others), while MFC clauses use about 12-14 percent; CoT requirement likely tighter than MFC clause because of lower official discount rates.
  - MFC uses PV-based recovery ratio; Paris Club and other official creditors use broader comparability calculations.
- Costs to enforce the MFC:
  - Enforcing the clause would likely precipitate another restructuring; bondholders face costs and tradeoffs before enforcement.

### Debt transparency and information provision obligations
- Importance:
  - Greater debt transparency is widely acknowledged as necessary, especially in restructurings.
  - Low debt transparency hampers creditors’ ability to assess comparable treatment and delays restructuring; higher transparency has longer-term benefits, including lowering bond spreads (IMF 2023a).
- Inclusion in instruments:
  - Creditors have pushed for information provision obligations in new instruments; sovereign bonds typically do not carry such obligations, unlike corporate bonds/loans.
  - With inclusion of SCDI and MFC clauses, bondholders need data to objectively determine compliance.
- Variation across cases (Table 5 summary):
  - Ghana
    - Information on SCDI: N/A (no SCDIs)
    - Information on MFC: Yes
    - Broader Debt Data: Public Debt Information
    - Remedies: Event of Default
  - Zambia
    - Information on SCDI: Yes
    - Information on MFC: No
    - Broader Debt Data: Public Debt Information
    - Remedies: Event of Default
  - Sri Lanka
    - Information on SCDI: Yes
    - Information on MFC: Yes (including key terms of agreements reached with creditors)
    - Broader Debt Data: Public Debt and Guaranteed Public Debt, with semi-annual investor calls
    - Remedies: Only failure to publish information on the SCDI triggers an Event of Default
  - Ukraine
    - Information on SCDI: Yes
    - Information on MFC: No
    - Broader Debt Data: No
    - Remedies: Event of Default
- Design trade-offs:
  - Clauses vary across cases reflecting trade-offs among transparency, sovereign capacity, and legal risks.
  - Some have proposed standardized information provision clauses to set market expectations, but standardized clauses may require tailoring to sovereign capacity.
  - Sri Lanka example: governance-linked bonds reduce coupon payments if governance performance indicators (including information provision obligations) are met — scalability and market uptake remain uncertain.

### Legislative tools and recent jurisdictional developments
- Status quo:
  - Existing legislative tools in UK, Belgium and France remain in place but have never been invoked.
- Proposed initiatives:
  - Recent bills proposed in New York state legislatures aim to:
    - Create statutory mechanism for restructuring sovereign debt under New York law;
    - Limit private creditor recoveries on sovereign claims governed by New York law;
    - Reinstate the champerty defense for sovereign debtors and reduce the statutory interest rate (the “Champerty Bill”).
  - In the UK, a bill proposed to cap recoverable debt in UK courts to the amount a creditor would have received if it participated in a debt treatment under the Common Framework or other multilateral initiative.
  - None of these proposals have been adopted to date.
- Market responses:
  - These initiatives have motivated creditors to insist on changes to governing law and jurisdiction in some restructurings to avoid potential application of new legislation.
  - Examples:
    - Suriname: change of governing law and submission to jurisdiction removed as a reserved matter to facilitate changes by simple majority of bondholders.
    - Sri Lanka: special provision allows change of governing law and jurisdiction in New International Bonds upon request of at least 20% of holders of each series; failure to implement approved changes would constitute an event of default.
  - No evidence so far of a shift away from traditional jurisdictions for new issuances.

### Staff analysis and conclusions (Section VI extract)
- Continued evolution:
  - The contractual framework for sovereign debt resolution has continued to evolve.
  - The 8 debt restructuring cases involving privately held sovereign debt during 2020 - 2025 have provided additional evidence on CAC operation and restructuring of non-bonded and collateralized debt.
- New contractual features:
  - New features salient for future restructurings have been introduced which, although not yet triggered, present both potential costs and benefits.
- Monitoring:
  - Staff will continue to monitor developments as part of its ongoing work program.

*Source: A STOCKTAKING OF THE INTERNATIONAL ARCHITECTURE FOR RESOLVING PRIVATE SECTOR SOVEREIGN DEBT, International Monetary Fund (excerpts)*

### 35.   The contractual framework for sovereign debt resolution remains effective for

### 35.   The contractual framework for sovereign debt resolution remains effective for

### Effectiveness for bonded debt
- The contractual framework has delivered very high creditor participation rates in restructurings with only one case of a holdout.55
- There continues to be a very high uptake of enhanced CACs in new issuances under English or NY laws, although not under other jurisdictions.
- The stock of outstanding bonds without enhanced CACs is steadily decreasing, though it will still take some time for all such bonds to mature.
- Almost all international sovereign bonds include some form of CACs.

### Challenges with non-bonded debt
- The contractual framework has been less effective in resolving non-bonded debt, with only piecemeal solutions available.
- To date, the proportion of non-bonded debt in the overall debt stock has been relatively small and in recent restructuring cases the remaining unrestructured non-bonded debt has also been relatively small. However, increasing liquidity constraints could lead to increasing use of non-bonded debt from a broader range of creditors, exacerbating resolution challenges.
- Relevant contractual provisions and their limits:
  - MVPs can be helpful but are limited to syndicated loans and lack an aggregation mechanism across loans; to date, they have not been adopted. Recent initiatives, such as the London Coalition, aim to examine potential increased adoption.56
  - MFCs set clear parameters for terms for residual non-bonded creditors rather than leaving room for different terms and burden-sharing disputes; they affect incentives in negotiations but do not bind holdout creditors to restructuring terms, so they are not a comprehensive solution.
- Options to improve outcomes with non-bonded creditors:
  - Better coordination and information sharing (including among non-bonded creditors) may help accelerate negotiations. Possible measures include debtor-convened meetings of creditors to flag concerns and explore solutions early and throughout the process, and examining ways to facilitate formation of non-bonded creditor committees.56
  - Increased transparency on both the stock of outstanding non-bonded debt and terms reached with other non-bonded creditors should be explored; related information provision obligations under bond contracts may help inform such an approach.57
  - Exploring ways to facilitate earlier restructuring of non-bonded debt is a topic of discussion at the GSDR, and work is continuing (GSDR Compendium).

### Restructuring of sovereign domestic debt
- Recent domestic debt restructurings were executed successfully through burden sharing mechanisms based on investors’ loss absorptive capacity and delivered debt reductions without using domestic law to aggregate domestic debt instrument holders.
- This reaffirms IMF 2021b findings: sovereigns considering a DDR should anticipate its impact on the domestic financial system, limit legislative or executive acts unless necessary, and put in place policy measures that mitigate the costs of a domestic debt restructuring for relevant creditor groups.
- A fair and transparent process that encourages participation and accommodates creditor preferences to the extent possible can reduce the costs of domestic debt restructuring operations.

### Emergence and use of contractual features (SCDIs, LRCs, MFCs)
- General: SCDIs, LRCs and MFCs can facilitate and speed up restructurings, but their use requires careful, tailored design to the specific problem being addressed.
- SCDIs:
  - SCDIs come with significant risks and concerns (Box 3), but can help bridge gaps and avoid costly delays; there is a potential role for them.
  - Past applications of detachable VRIs involving macro factors have generally produced poor outcomes.58
  - The recent MLB design, constrained by index-eligibility, is more promising because required simplicity and fixed income features help cap exposures and avoid prior unintended consequences.
  - MLB triggers required to ensure debt sustainability may still be too complex for some country cases.
  - If adopted, sovereign issuers should build capacity in their Debt Management Office to monitor compliance with payment and information provision obligations.
  - Proposals relating to broader debt pause clauses remain under discussion; staff will continue to engage with stakeholders and monitor developments.
- LRCs:
  - LRCs may speed up a current restructuring but could complicate and slow down a subsequent restructuring if needed.
  - To minimize risks, the effective period of LRCs should be carefully considered; parties should identify a specific time after which creditors should not be restored to their pre-restructuring status quo (the shorter this period, the less the risks).
  - LRCs designed with broad triggers—especially if non-payment related—need to be used judiciously because they could have unintended effects and precipitate a restructuring even when the sovereign can service its debts.
- MFCs:
  - MFCs could speed up bond restructurings by assuring participating bondholders about the treatment of future restructuring creditors and by providing sovereign issuers additional leverage by effectively setting the ceiling of debt relief that can be provided.
  - Some standardization around recovery comparisons and exclusions could be helpful, but clause formulations are often deal-specific and require more analysis and market consultation.
  - Carve-outs to MFC clauses should be considered carefully to balance assurances to bondholders against the cost of reaching MFC-compliant terms with residual creditors (which may be high in certain circumstances, e.g., litigation or small amounts involved).
  - Residual creditors may provide essential financing (e.g., trade finance), which affects considerations around exclusions.

### Information provision and debt transparency
- Contractual clauses on information provision are a potential tool for improving debt transparency, which benefits sovereigns.
- Such obligations impose costs on sovereigns’ resources and capacity, with potentially serious consequences if obligations are not met.
- Sovereign issuers should be clear about the extent of these obligations and whether they can meet them to prevent technical defaults; clauses should be tailored to specific data that can be produced on a timely basis.
- Sovereign issuers should strengthen legal frameworks, capacity and data quality and management systems (IMF 2024a) by providing adequate resources to debt management and statistical offices.
- Creditors should avoid limiting sovereigns’ ability to disclose debt through confidentiality clauses (IMF 2023a; Maslen and Aslan 2022).

### Statutory approaches: costs, benefits, and design considerations
- Statutory tools impact and likely undermine creditor rights and overreliance could undermine commercial law principles related to enforceability of contractual rights, increase ex-ante costs of debt issuances, and undermine secondary markets and liquidity.
- Additional costs of legislative tools include resources for analytical work and consultations and political capital for implementation; broader legislation (in scope/effect) implies greater costs.
- Legislative tools should only be used when sufficient benefits justify costs and when clearly needed (e.g., systemic sovereign debt crisis or idiosyncratic circumstances necessitating national or international action).59,60
- Targeted scenarios where legislative tools could complement the contractual framework may exist (e.g., existing UK legislation keyed off the HIPC initiative).61
- Benefits of legislative tools are likely limited unless coordinated across jurisdictions because parties may change governing law of affected debt instruments.
- Contractual framework remains flexible and capable of innovations (e.g., introduction of MFCs) to address gaps when they arise.
- If legislative tools are considered, they must be very carefully designed and tailored: burden-sharing standards, legal protections, and harmonization of existing laws require careful analysis; scope and time should be appropriately ringfenced.
- Poorly designed legislative measures could slow and complicate the restructuring process; issues worsen if multiple jurisdictions propose uncoordinated legislative measures.62
- Broad stakeholder acceptance and a consultative process are important in design and implementation.63

### Litigation, arbitration, and collateralized arrangements
- Sovereign litigation and arbitration, and the use of collateralized (or collateral-like) arrangements present potential challenges but their impact has been limited thus far.
- Only one holdout litigation was initiated in recent restructurings.
- Outside restructurings, a number of high-profile lawsuits or arbitrations against sovereigns or their enforcement were observed between 2020 and 2025.
- Creditor litigation and enforcement actions have generally not impeded successful restructuring of private sovereign debt so far.
- Issuance of bonds under trust structures provides additional protection against disruptive holdout enforcement actions.
- Use of collateral (or collateral-like) arrangements has increased overall and has hampered restructurings in a few cases.
- More rigorous enforcement of negative pledge clauses could disincentivize excessive incurrence of new collateralized debt.
- IMF and World Bank 2023 discusses policy recommendations regarding collateralized transactions; borrowers, lenders and IFIs each have roles (borrowers enhancing capacity and governance; lenders and IFIs promoting transparency).

### Coordination between official and private sector involvement (OSI and PSI) and the Fund’s role
- Coordination between OSI and PSI is becoming more agile with experience, though more progress is needed due to a changing creditor landscape with increasingly diverse traditional and non-traditional lenders.
- Official creditors have committed to enhanced transparency and information sharing; processes such as debtor-convened meetings early and throughout the process can promote information sharing.
- A parallel process could speed up restructuring.
- The Fund can facilitate smooth operation of the contractual framework, including on information sharing between the Fund and private creditors.
  - The Fund has policies on lending into arrears and on information sharing in sovereign debt restructurings (IMF 2024b).
  - The DSA underpins the Fund’s decision to provide financing; Fund staff does not “negotiate” the DSA with creditors or other third parties, and can lend into arrears under well-defined circumstances.
  - Staff should consistently explain DSA assumptions at the outset and at each program review, at the request of the member and under appropriate confidentiality undertakings.64
  - In cases where an SCDI is proposed due to significant divergence of views on the macro-framework, Fund staff can develop communication with creditors (including availability of tools) in line with its policies.
  - Fund staff meeting with private creditors (with the member’s consent) early or at regular intervals can inform staff’s assessment.64
  - The Fund can use its good offices to convene debtor-creditor meetings, at the debtor’s request with creditors’ consent, to facilitate information sharing and coordination.65

### Fund work program going forward
- Implementing and updating Fund guidance of sovereign debt policies, particularly on the role of the Fund in debt restructurings; a review of the policies is scheduled for 2027 (FY28).
- Engaging with international initiatives developing contractual features, such as the London Coalition.
- Supporting work of the GSDR, particularly on creditor coordination issues.
- To support proper use of SCDIs, reviewing and/or providing updated guidance and software on the Bank-Fund Debt Sustainability Framework for Low Income Countries (LIC-DSF) and Sovereign Risk and Debt Sustainability Framework (SRDSF).
- To support information provision clauses, strengthening ex-ante debt management and capacity building on debt transparency and improved debt data management systems through continued technical assistance.

*A STOCKTAKING OF THE INTERNATIONAL ARCHITECTURE FOR RESOLVING PRIVATE SECTOR SOVEREIGN DEBT*

### Annex I. Domestic Debt Restructurings

### Annex I. Domestic Debt Restructurings

### Overview and context
- Domestic debt restructuring (DDR) was undertaken in Ghana (2023) and Sri Lanka (2023).
- The two experiences diverged in initial domestic debt conditions, determining perimeter, design, and implementation with different debt relief targets.
- DDRs were undertaken because external debt restructuring and fiscal adjustment alone could not restore debt sustainability and macroeconomic stabilization.

### Buildup of domestic debt vulnerabilities (pre-DDR)
- As access to external market financing closed, authorities in Ghana and Sri Lanka resorted to domestic financing prior to IMF-supported programs.
- Domestic bond market access froze as sovereign risks mounted, increasing reliance on T-bills.
- Mounting T-bills increased gross financing needs (GFNs); unmet financing needs were filled by arrears accumulation and/or central bank monetary financing, contributing to an inflation–exchange rate depreciation spiral.
- Both countries faced:
  - very high gross financing needs and heavy domestic interest payment burdens,
  - high net domestic financing in 2022,
  - accumulation of domestic arrears,
  - high sovereign–bank interconnectedness.

### Key design features of the Ghana and Sri Lanka DDRs
- Debt targets:
  - Ghana: LIC-DSF did not provide an explicit domestic debt target. DDR motivated by “the large share of domestic debt and the virtually frozen domestic debt market”; domestic debt service relief sought “designed to reduce domestic financing pressures significantly.”
  - Sri Lanka: SRDSF targets relevant for domestic debt included:
    - total public debt to GDP (95 percent by 2032),
    - a GFN target (average GFN between 2027-32 below 13 percent of GDP),
    - an FX debt service target (annual FX debt service below 4.5 percent of GDP in each year over 2027-32).
- Domestic authorization:
  - In both Ghana and Sri Lanka, DDR was approved by Parliament and structured as an exchange offer.
  - DDRs were not implemented through legislation that changed the terms of domestic debt, nor legislation introducing retroactive CACs.
  - New bonds issued by Ghana incorporated the enhanced CACs.
- Perimeter:
  - Ghana: everything except T-bills were included; debt issued by government special purpose vehicles and Cocobills issued by Ghana Cocoa Board (Cocobod) were included.
  - Sri Lanka: commercial bank holdings of local currency T-bills and T-bonds were excluded (about 44 percent of total domestic debt); restructuring covered the rest of the domestic debt. Commercial banks in Sri Lanka held Eurobonds that were restructured.
- Duration:
  - Ghana’s DDR took 0.75 years to complete.
  - Sri Lanka’s DDR took 1.3 years to complete.
- Sequencing with external debt restructuring:
  - In both cases, completion of the DDR preceded external debt restructuring; both were pre-emptive restructurings.
- Local currency sovereign credit ratings:
  - S&P before DDR: Ghana CCC+, Sri Lanka CCC-, both negative outlook.
  - Both came out CCC+ stable outlook.
  - Fitch upgraded Ghana to B- in June 2025.

### Outcomes and key statistics
- Weighted average NPV reduction:
  - Ghana: 32 percent.
  - Sri Lanka: 12 percent.
- Treatments differed by investor base, reflecting bespoke approaches due to distinct political and financial constraints.
- Financial stability indicators and market functioning after DDR:
  - Central banks strengthened crisis management frameworks, deposit insurance schemes, emergency liquidity assistance, and contingent capital planning.
  - Regulatory forbearance (e.g., release of capital buffers) helped affected banks meet regulatory requirements over time.
  - Ghana established a financial stability fund; Central Bank of Sri Lanka expanded eligible collateral for emergency liquidity assistance beyond government securities.
  - Capital adequacy ratio: fell for Ghana’s banking system; improved for Sri Lanka.
  - Return on assets: increased for Ghana; declined for Sri Lanka.
  - Real credit to the private sector decreased in both countries.
  - Non-performing loans increased significantly in Ghana.
- Market restoration and issuance:
  - Net domestic financing needs remained positive post-DDR in both countries; rollover needs of T-bills exempted from restructuring kept gross financing needs elevated.
  - T-bill issuance costs surged due to high policy rates and sovereign risk premia during and after DDR, partly offsetting DDR relief.
  - As of 3Q2025, Ghana has not resumed bond issuances (constrained by the “Limitation on Future Issuances” clause, in which Ghana cannot issue a new series of bonds for a period of three years after the settlement date); restructured bonds suffered stigma, with some banks refusing to accept them as collateral.
  - Sri Lankan issuance of long-term bonds has slowly normalized in cost and volume.
- Historical comparators (pre-2020 DDRs):
  - Jamaica: nearly three years to resume bond issuance after second DDR in 2013.
  - Barbados: resumed issuance 4 ½ years post-DDR.
  - Grenada: took about three years to issue a 2-year T-bond.
  - These countries relied on external official financing in the interim.

### Ghana versus Zambia: divergent paths despite similar vulnerabilities
- Similarities prior to restructurings:
  - Both had similar domestic debt levels as percent of GDP at end-2022.
  - Both faced very high GFNs, heavy domestic interest payment burdens, high net domestic financing in 2022, and accumulated domestic arrears.
  - Sovereign–bank interconnectedness was among the highest in sub-Saharan Africa for both.
- Key divergences:
  - Willingness to continue paying high real interest rates:
    - Ghana: bond auctions failed and were abandoned in 2022; authorities abandoned bond auctions, relied exclusively on T-bills, and resorted to monetary financing.
    - Zambia: non-resident holdings increased between 2019–21 as Zambia continued issuing bonds at high real interest rates (subscription rates fell).
  - Timing of external default:
    - Zambia defaulted in 2020; domestic debt market remained a lifeline until an IMF arrangement.
    - Ghana continued to service external obligations through 2022.
  - Policy choices and financial stability assessments:
    - Zambia: stress testing suggested DDR could be destabilizing; authorities prioritized financial stability and macro-financial implications over potential benefits of DDR. Treatment of non-resident investors was explored but separating them from domestic holders proved difficult.
    - Ghana: authorities judged financial stability risks manageable by excluding T-bills, containing losses commensurate with banking sector loss-absorptive capacity, and implementing mitigating measures.

### Other DDR cases since 2020 (selected)
- El Salvador (May 2023):
  - Debt exchange with private pension funds (about 28 percent of GDP).
  - Operation included a four-year grace period on interest payments, capitalized with new coupon rate of 7 percent (from 4.5 and 6 percent).
  - Maturities lengthened to up to 50 years (from original 24 and 44 years).
  - Fitch and S&P classified it as a distressed debt exchange.
- Argentina (Aug & Nov 2022; Jan, Mar, Jun 2023; Mar 2024):
  - Peso-debt exchanges aimed at pushing out maturities (from a few months to up to three years).
  - Offered a mix of inflation-linked and dual (inflation- and exchange rate-linked) peso-denominated securities.
  - Participants: mostly public-sector entities (FGS, ANSES, Banco de la Nacion Argentina, BCRA) and to a lesser extent private-sector participants.
  - S&P considered these transactions distressed.
- Republic of Congo (October 2024):
  - Announced debt exchange of CFA franc-denominated debt of about 25 percent of GDP and 45 percent of the domestic debt stock issued in its regional market.
  - Old bonds exchanged for new CFA franc-denominated bonds with longer maturities and unchanged coupon rates and principal amounts.
  - Creditors received an upfront fee payment of 1 to 3 percent of the principal.
  - Bank of Central African States (BEAC) granted new bonds a 0 percent risk-weighting.
  - Fitch and S&P classified the transaction as a distressed debt exchange.
- Gabon (April 2025):
  - Local-currency debt exchange involving about 5.4 percent of GDP, or 34 percent of its outstanding regional market debt.
  - 36 percent of T-bills and 27 percent of T-bonds were exchanged for bonds with longer maturities, backed by resources-linked escrow accounts.
  - Fitch did not classify the exchange as distressed (met one of two criteria: material term reduction, but not default avoidance).
  - Moody’s classified the operation as a distressed exchange.

*Annex I. Domestic Debt Restructurings*

### 5. Holders of enforceable court judgments or arbitral awards may seek to interrupt

### 5. Holders of enforceable court judgments or arbitral awards may seek to interrupt

### Enforcement cases and recent examples
- November 2020 — Supreme Court of NY issued a restraining notice to freeze all accounts in NY used to make payments on Guatemala’s international debt securities.
  - Case: TECO Guatemala Holdings, LLC, v. Republic of Guatemala, Case 1:20-cv-09559-LTS.
  - Result: The restraining notice prohibited Guatemala’s fiscal agent from making any transaction related to property in which Guatemala had an interest, which caused it to miss a coupon payment and resulted in a rating downgrade.
  - Subsequent action: Guatemala satisfied the judgment before the bond’s grace period expired and the plaintiff subsequently withdrew the asset restraint served on the fiscal agent.
- July 2022 — Luxembourg bailiff ordered banks to freeze all accounts held by Ecuador in Luxembourg at the request of an award holder.
  - Case: Perenco Ecuador Ltd. v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID Case No ARB/08/6.
  - Award: US$412 million ICSID award against Ecuador.
  - Action: 122 banking entities in Luxembourg were asked to freeze all assets in accounts used by Ecuador, including those used to make payments on international debt obligations.
  - Resolution: On December 22, 2022, the government announced it had reached a settlement with the award holder and the freezing order was lifted.

### Risks to payment streams and debt resolution
- Court orders or injunctions served on third parties (fiscal agents, payment providers) can disrupt sovereign debtor payment streams and complicate overall debt resolution.
- The Guatemala and Ecuador cases illustrate that interruptions to sovereign debt payments remain a potential legal risk for debtor countries and their creditors.

### Legal-structural mitigation: fiscal agents vs trustees
- Fiscal agents under a fiscal agency agreement (FAA):
  - Funds held by the fiscal agent are typically treated as belonging to the issuer, putting them at risk of attachment.
  - Under an FAA, the fiscal agent serves as an agent of the issuer, and its main responsibility is making principal and interest payments to the bondholders.
- Trust structures / bond trustees:
  - Monies held by a trustee are generally considered the property of the bondholders, rendering attachment more difficult.
  - Under trust structures, a bond trustee acts on behalf of, and has a number of responsibilities to, bondholders as a group.
  - Market practice: The majority of New York law-governed bonds are issued under trustee structures, while only a minority of English-law governed bonds are.
- Trade-off:
  - Switching to trust structures may result in higher costs for the issuer and has therefore been less attractive than issuing bonds under FAAs.

### Relevant litigation inventory highlights (selected entries from Annex II)
- Litigation related to active sovereign debt restructurings:
  - Sri Lanka — Hamilton Reserve Bank v. Sri Lanka (USA) — Judgment pending — US$250 million — Filed June 2022.
- Litigation related to law applicable in sovereign debt disputes:
  - Venezuela (PDVSA) — PDVSA v. MUFG Bank Union (USA) — On appeal — N/A — 2019 (2024).
  - Ukraine — The Law Debenture Trust Corporation v Ukraine (UK) — Remanded to trial court — N/A — 2016 (2024).
- Litigation related to state-contingent debt instruments (SCDIs):
  - Argentina — Palladian Partners v. Argentina (UK) — Final judgment issued (not enforced) — EUR1.5 billion — 2020 (2024).
  - Argentina — Aurelius Capital Master v. Argentina (USA) — Amended complaint filed — US$650 million — 2021 (2024).
- Litigation involving state-owned enterprises:
  - Venezuela — O.I. European Group v. Venezuela (USA) — Final judgment issued (not enforced) — US$372 million — 2011 (2024).
  - Argentina — Petersen Energia Inversora v. Argentina (USA) — On appeal — US$16.1 billion (US$16.1 billion) — 2015 (2024).
- Enforcement of arbitral awards or judgments by interrupting debt payments:
  - Guatemala — TECO Guatemala Holdings v. Guatemala (USA) — Settled — US$46 million (US$46 million) — 2010 (2020).
  - Ecuador — Perenco v. Ecuador (Luxembourg) — Settled — Currently unavailable — 2008 (2022).

### Implications for sovereign debt managers and creditors
- Payment interruption risk:
  - Enforcement actions targeting payment intermediaries can lead to missed payments, rating downgrades, and increased complexity in restructuring processes.
- Contract and issuance strategy:
  - Issuers may consider trust structures to reduce the vulnerability of payment streams to attachment or freezing orders, weighing the higher issuer costs against legal protection benefits.
- Monitoring and contingency planning:
  - Sovereigns and creditors should monitor litigation and enforcement trends (including ICSID and foreign judgment recognition cases) and incorporate potential interruption scenarios into debt sustainability and liquidity planning.

*A STOCKTAKING OF THE INTERNATIONAL ARCHITECTURE FOR RESOLVING PRIVATE SECTOR SOVEREIGN DEBT — excerpt.*

### 2. LRCs should be carefully designed to mitigate risks to the sovereign issuer. These

### 2. LRCs should be carefully designed to mitigate risks to the sovereign issuer. These

### Design considerations, costs and benefits
- LRCs may pose risks to the sovereign issuer if they are triggered too broadly and/or inadvertently, especially given the severe financial consequences of such clauses.
- Legal enforceability / penalty risk:
  - Concern that courts may perceive LRCs to be a penalty, which may be unenforceable.
  - Enforceability must be evaluated case-by-case; Section 356(2) of the Second Restatement of Contracts and UK cases Cavendish Square Holding BV v El Makdessi and ParkingEye Ltd v Beavis [2015 UKSC 67] are referenced for legal perspective.
- Trigger scope:
  - Early LRCs included only payment defaults as a trigger.
  - Recent cases include moratorium event of default as a trigger (an incremental expansion).
  - Triggers linked to non-payment obligations (e.g., information provision, cross-default triggers) link performance of other obligations to LRC activation, which may not be tied to sovereign debt-servicing capacity.
- Grace periods:
  - Ecuador’s LRC included a 12 months grace period.
  - Recent formulations tie triggers to specific events of default, each with its own applicable grace period.
  - Typical applicable grace periods for payment defaults: range from 7 – 15 days for principal payments and 30 days for interest payments.
- Activation mechanism (automatic vs. consent-based):
  - Ghana’s LRC: requires consent of at least 25% of noteholders for the LRC to trigger.
  - Sri Lanka’s LRC: requires consent of at least 20% of noteholders.
  - Zambia’s Notes: automatic acceleration—upon occurrence of trigger events, B Notes are automatically accelerated and increased by the requisite amounts, due and payable immediately.
  - Acceleration decisions are significant and can trigger cross-defaults in other instruments.
- Interaction with SCDI:
  - Principal increase under LRC and SCDI-triggered coupon or principal increases could result in “double counting”; must be carefully handled.
  - One option: LRC could be no longer in effect at the time of the SCDI trigger date.
- Life / effective period of LRC:
  - Consider link to bond maturity and whether there is a time after which creditors should not be restored to pre-restructuring status quo.
  - Examples: effective period of LRCs in Ukraine and Zambia generally linked to the IMF arrangement; Ghana’s LRC is much longer.
- Design trade-offs:
  - Complex negotiations produce varied formulations; no one-size-fits-all.

### Specific design elements and examples (country comparisons)
- Ecuador:
  - LRC included a 12 months grace period; earlier use context noted in footnotes.
- Ghana:
  - Activation threshold: at least 25% of Long/Short Term Disco New Notes.
  - Cut-off date where LRC effective: Dec 31, 2032.
  - Triggers: Payment EoD; Moratorium EoD; Issuer non-consent to publication of IMF staff reports; Liquidated Damages Event where Ghana Supreme Court finds Disco Notes illegal/invalid/unenforceable under domestic law in certain circumstances.
  - Effect if triggered: Principal amount increase; 37% of the principal amount plus accrued interest (up to end-Dec 2023) of the existing notes exchanged for the Disco New Notes.
  - Changes to LRC a Reserved Matter? No.
- Zambia:
  - Activation: N/A – automatic acceleration.
  - Cut-off date where LRC effective: Up to final disbursement made under current ECF Arrangement (current Availability Date for the final disbursement is October 1, 2025).
  - Triggers: Payment EoD; Moratorium EoD; Failure to Publish Adjustment Event Determination Notice EoD; Cross-Default EoD.
  - Effect if triggered: Principal Amount Increase; B Notes automatically accelerated and immediately due and payable upon trigger events.
  - Amount of Principal Increase: 62.25% increase in nominal amount of B Notes (i.e., outstanding principal amount of B Notes plus accrued and unpaid interest plus US$622.50 per US$1,000 in nominal amount of B Notes are immediately due and payable).
  - Changes to LRC a Reserved Matter? Yes.
- Sri Lanka:
  - Activation threshold: at least 20% of the Holders.
  - Cut-off date where LRC effective: Governance-Linked Bonds: Nov 30, 2028; Macro-Linked Bonds: (i) if adjustment event has not occurred, date of delivery of notice, (ii) if adjustment event has occurred, effective date of adjustment.
  - Triggers: Payment EoD; Moratorium EoD; Cross-Default EoD.
  - Effect if triggered: Principal Amount Increase; Step-Up A and B Notes automatically accelerated and immediately due and payable upon trigger event occurring.
  - Amount of Principal Increase: 37% of the aggregate outstanding amount of New International Bonds plus 12.5% of the aggregate outstanding amount of the PDI Bonds (in each case, as of the date of the Loss Reinstatement Event).
  - Changes to LRC a Reserved Matter? Yes.
- Ukraine:
  - Trigger: bespoke CoT EoD—where a CoT Assessment by certain official creditors requires a further commercial debt treatment and there is a failure to pay or moratorium event.
  - Cut-off date where LRC effective: CoT Assessment will occur during or immediately after the expiry of Ukraine’s current EFF Arrangement (currently end-March 2027).
  - Activation: N/A – automatic acceleration.
  - Effect if triggered: Principal increase aimed to place bondholder in same position as if exchange did not occur and original bonds remained in default up to the LRC trigger date.
  - Amount of Principal Increase / Commercial effect: Exchange notes will be due and payable in an increased amount broadly equal to outstanding principal of existing (pre-exchange) notes, together with accrued and unpaid interest from 2022 debt deferral up to date of the 2024 exchange bonds are issued, with a notional interest of 7.43% on such amounts, from such issue date to the Loss Reinstatement Date. Any interest and consent fees paid on the 2024 exchange bonds in the interim will be deducted.
  - Changes to LRC a Reserved Matter? Yes.

### Ukraine-specific LRC features and rationale
- Context:
  - LRC included to mitigate exceptionally high uncertainty where bondholders proceeded with debt treatment first; official creditors (Group of Creditors of Ukraine, “GCU”) had a two-step process with debt standstill and assurance to deliver official debt treatment later.
- Unique trigger design:
  - Linked to bespoke event of default tied to CoT Assessment by official GCU and a subsequent failure to pay or moratorium.
- Restoration goal:
  - LRC designed to restore bondholders to the exact position as if the 2024 exchange had not occurred; principal increase includes interest that would have been paid on original bonds, deducts interest on exchange bonds and consent fees, and subjects the entire amount to default interest at higher interest rate of original bonds.
  - This differs from other cases that typically restore bondholders’ claim to the principal amount immediately before the restructuring date.

### Interaction with Most Favored Creditor (MFC) clauses and present value issues
- MFC mechanics:
  - MFC compares recovery percentages measured by past and future cashflows received divided by total claim measured on a present value basis.
  - Numerator considerations: cashflows of new instrument, consent fees, interim payments, original issue discount (OID).
  - Denominator considerations: outstanding principal, past due interest, default interest, other fees.
  - Precise drafting required to define included elements and valuation date.
- Valuation date approaches and effects:
  - Zambia: PV of future restructured debt valued as of the date of the exchange; later restructurings reduce PV (greater discounting), making MFC easier to satisfy. Recovery compared against lower of total nominal claim as of exchange date or future restructuring date.
  - Ghana: PV of future restructured debt valued as of exchange date, but total outstanding claim valued as of the future restructuring date—likely resulting in a larger denominator relative to Zambia.
  - Sri Lanka: recovery ratio formula compares PV of future restructured debt with total value of outstanding claim, each valued as of the future restructuring date—MFC does not change over time.
- SCDI complexity:
  - SCDIs can shorten maturity, increase coupon, and/or change principal, affecting PV of cashflows and recovery percentages.
  - Country approaches:
    - Zambia: mechanism typically assumes upside adjustment will be triggered, increasing recovery ratio.
    - Sri Lanka: exchange bonds include Macro-Linked Bonds and Governance-Linked Bonds; recovery rate deemed as 50.2% and 51.7% for existing bonds and commercial debt respectively, with total scheduled payments under macro-linked bonds calculated “using a probabilistic approach.”
    - Ukraine: MFC did not specify how SCDI (leading to principal increase in 2035 and 2036 B Notes) will be factored when calculating NPV of exchange notes.
- Ukraine MFC particularities:
  - Outright prohibition on payments on existing bonds, commercial debt claims, guarantees to certain SOEs and the US$3 billion Eurobond in dispute, according to contractual terms.
  - May enter into settlements with existing notes and commercial debt claims; MFC recovery comparison threshold applies only if notes (which can include exchange bonds) or cash are in the settlement.
  - No settlement can be entered into with respect to disputed notes.
  - If settlement lacks notes or cash, a majority bondholder vote is required.

### Key numeric figures preserved from cases and clauses
- Ecuador: 12 months grace period in LRC.
- Typical grace periods: 7 – 15 days for principal payments; 30 days for interest payments.
- Ghana LRC cut-off date: Dec 31, 2032.
- Zambia LRC cut-off: Up to final disbursement under current ECF Arrangement (current Availability Date for the final disbursement is October 1, 2025).
- Sri Lanka Governance-Linked Bonds cut-off: Nov 30, 2028.
- Activation thresholds: Ghana at least 25%; Sri Lanka at least 20%; Zambia and Ukraine: automatic acceleration (N/A threshold).
- Ghana principal increase: 37% of the principal amount plus accrued interest (up to end-Dec 2023) of the existing notes exchanged for the Disco New Notes.
- Zambia principal increase: 62.25% increase in nominal amount of B Notes; plus US$622.50 per US$1,000 in nominal amount of B Notes immediately due and payable (i.e., outstanding principal amount plus accrued and unpaid interest plus US$622.50 per US$1,000).
- Sri Lanka principal increase: 37% of the aggregate outstanding amount of New International Bonds plus 12.5% of the aggregate outstanding amount of the PDI Bonds (each as of date of Loss Reinstatement Event).
- Ukraine notional interest specification: 7.43% on amounts from issue date to Loss Reinstatement Date.
- De Minimis baskets in MFC exclusions:
  - Ghana: Aggregate of US$50m.
  - Zambia: Aggregate of $100m.
  - Sri Lanka: Aggregate of US75m (with $30m limit per creditor).
- Sri Lanka deemed recovery rates for relevant bonds: 50.2% and 51.7%.

*A STOCKTAKING OF THE INTERNATIONAL ARCHITECTURE FOR RESOLVING PRIVATE SECTOR SOVEREIGN DEBT — INTERNATIONAL MONETARY FUND*

### Annex III. Table 3. Most Favored Creditor Clauses (continued)

### Annex III. Table 3. Most Favored Creditor Clauses (continued)

### Value of the Exchange Bonds — Definition
- Ghana:
  - PV (12% Discount Rate) of the “Disco” Notes, valued at the Issue Date.
  - Includes the consent fee and special consideration payments on the Disco notes.
- Zambia:
  - PV (12% Discount Rate) at the Issue Date to the total value of the Existing Notes as of the Issue Date.
  - Silent on the treatment of the consent fees.
  - For Note B (with SCDI) – if Settlement Date occurs before/during the time the SCDI test period, assumes Adjustment is triggered (i.e., results in a higher recovery ratio).
  - If the SCDI clause is no longer effect (after SCDI test period), then the terms of Note B at such point will apply.
- Sri Lanka:
  - For Existing Bonds, set as 50.2%. For Commercial Debt, set at 51.7%.
  - Includes payment of the accrued consideration.
- Ukraine:
  - PV (13-14% Discount Rate) of all New Notes as of the Issue Date.
  - Includes payment of consent fees.
  - Note that the ratio test only applies if notes and/or cash payments are issued in the settlement. If any other consideration is provided, majority consent of the bondholders is required.

### Value of Future Restructured Claims — Definition
- Ghana:
  - PV of all cash flows from the future restructuring, including any interim payments.
  - Does not mention treatment of fees specifically (but includes “any other payments”).
  - Valued at the date of the original bond exchange.
  - Divided by: Total nominal value of principal, past due interest, default interest, any other applicable fees.
  - Valued at the future restructuring date.
- Zambia:
  - PV of all cash flows from the future restructuring, including any interim payments.
  - Does not discuss treatment of fees specifically.
  - Valued at the date of the original bond exchange.
  - Divided by: Total nominal value of principal and any accrued interest.
  - The lower of such amount valued as of the original bond exchange or as of the future restructuring date.
- Sri Lanka:
  - PV of all future cash flows from the future restructuring, including any interim payments.
  - Specifically includes fees payable.
  - Valued at the date of future restructuring date.
  - Divided by: Total nominal value of principal, past due interest, default interest and other applicable fees.
  - Valued at the future restructuring date.
- Ukraine:
  - For settlement of existing notes:
    - PV of all new notes issued from settlement, including any interim payments.
    - Specifically includes consent fees and OID.
    - Valued at the date of future restructuring date.
    - Divided by: Aggregate amount outstanding (principal and interest) as of future restructuring date.
  - For settlement of Commercial Claims:
    - PV of all cash flows for new debt facility provided, including any interim payments.
    - Specifically includes consent fees.
    - Valued at the date of future restructuring date.
    - Divided by: Aggregate amount of the relevant commercial claim (principal and interest) as of future restructuring date.

### Waiver and Governance
- Waiver:
  - Ghana: None
  - Zambia: 75% of all Notes.
  - Sri Lanka: None (unless EOD waiver of 50%)
  - Ukraine: 50% (if Settlement is not notes/cash)
- Changes to MFC a Reserved Matter?
  - Ghana: No
  - Zambia: Yes
  - Sri Lanka: Yes
  - Ukraine: Yes

*Source: Annex III. Table 3 and Annex III. Table 4 (excerpts) from the provided IMF content.*

### Annex III. Table 4. Information Provision Obligations

### Securities which Include the Information Provision Obligations
- Ghana: All Notes
- Zambia: B Notes
- Sri Lanka: New International Bonds; Step Up B Notes
- Ukraine: (not listed)

### Publication Obligations
- Ghana — Semi-Annually:
  - Aggregate external indebtedness of Ghana and aggregate external indebtedness of certain Public Sector Instrumentalities (with details such as interest rates, maturities, amortization).
  - A list of agreements or arrangements to compromise or otherwise settle with other creditors and statement if it complies with MFC.
  - Outstanding amount of each debt subject to MFC.
  - Consent to publication by the IMF of all staff reports and AIV reports.
- Zambia — During the Relevant Period:
  - Information related to whether the SCDI is triggered (information related to the Composite Indicator or certain export data).
  - Total external indebtedness of Zambia broken down by class of creditors.
- Sri Lanka — Semi-Annually and Annually:
  - Semi-Annually: Aggregate data on public debt and guaranteed public debt of Sovereign and Public Sector Instrumentalities (with details such as lenders, amount, currency, interest rate etc.).
  - A list of agreements or arrangements to pay other creditors as well as the key terms to compute compliance with MFC.
  - Outstanding amount of each debt subject to MFC.
  - Annually:
    - MOF Annual Report (including data on total revenue to GDP).
    - Central Bank Annual Economic Review (data on Real GDP Growth and USD Nominal GDP).
    - Ensure that the 2029 WEO database publishes information relating to the 2028 Actual GDP at Constant Prices and 2028 Actual Nominal GDP.
    - If the IMF fails to publish the WEO, then Issuer shall publish such information.
    - If GDP is rebased or restated, such information above should contain the data prior to rebasing or restatement.
- Ukraine: (publication obligations not listed in the excerpt)

### Investor Calls
- Ghana: None
- Zambia: None.
- Sri Lanka: 45 days following each semi-annual publication.
- Ukraine: None.

### Effect of Non-Compliance
- Ghana: Event of Default.
- Zambia: Event of Default.
- Sri Lanka:
  - Failure to publish (other than the Annual Economic Review) or hold investor calls not an Event of Default.
  - Failure to publish Annual Economic Review (up to 2028) an event of default IF the IMF has not published the WEO or WEO does not contain sufficient data for the Macro-Linked Bonds.
- Ukraine: Event of Default.

### Changes to Information Provision a Reserved Matter?
- Ghana: No
- Zambia: No
- Sri Lanka: No
- Ukraine: No

*Source: Annex III. Table 3 and Annex III. Table 4 (excerpts) from the provided IMF content.*

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_Source: https://www.imf.org/-/media/files/publications/pp/2025/english/ppea2025034.pdf_