The Pari Passu Interpretation in the Elliott Case: A Brilliant Strategy But an Awful (Mid-Long Term) Outcome?
Sovereigns can amass unsustainable debts, fueling the increasing need to restructure to prevent or resolve financial and economic crises and to achieve debt sustainability levels. From the 1990s, many sovereign debt restructuring episodes experienced difficulties because some bondholders did not accept the sovereign’s exchange offer and instead claimed the total value of the debt. These creditors are known as “holdouts” or “rogue creditors.”
As a result of the debt exchange and the fact that after the settlement there were outstanding bondholders that were holdouts and that did not take part in the exchange offer, the dynamics in the relationship of the involved parties has changed. The parties involved are: (1) The sovereign, debtor of the so-called “old bonds” and the “new bonds.” The old bonds are those held by the holdouts that did not participate in the exchange offer. The new bonds are those that were issued to creditors as a result of the exchange offer. (2) The bondholder who holds an old bond, that is, the holdout. (3) The bondholder who holds a new bond, that is, the creditor that voluntarily entered the exchange offer.