CFA Level I · CFA Level I Exam · Credit Analysis for Government Issuers
Sovereign bonds issued with collective action clauses (CACs) are most likely to:
Collective action clauses allow a specified majority of bondholders to agree restructuring terms that bind all holders, including dissenters. This limits holdout creditors and speeds restructuring, whereas unanimous consent would make restructuring slow and CACs offer no guarantee of recovery.
- Aguarantee bondholders full recovery in default
- Ballow a specified majority of bondholders to bind all holders to restructuring termsCorrect
- Crequire every bondholder to consent before terms are changed
Explanation
CACs let a qualified majority agree to a restructuring that binds the minority, reducing holdout problems. Unanimity is what CACs replace, and they provide no recovery guarantee.
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