After the restructuring of Argentina’s debt in 2003, the international community decided that collective action clauses (CACs) would be included in international debt issuances to facilitate international efforts for orderly restructurings in the event of a sovereign debt crisis. 



Image: Outlook 2016

The objective of these provisions was to allow a majority of bondholders to recontract sovereign debt, without a minority of bondholders obstructing the process.

On 2 February 2012, a modified version of the Treaty Establishing the European Stability Mechanism (EMS) was signed by all 17 euro area Member States. Paragraph 3 of Article 12 of the Treaty states that as of 1 January 2013, CACs shall be included in all new euro area government debt securities with an original stated maturity of more than one year, in a way which ensures that the legal impact across Member States is identical. The Economic and Financial Committee (EFC) developed and approved the European model CACs. These were subsequently confirmed by the Heads of Government and States of euro area Member States on 11 March 2011 and by the European Council on 24-25 March 2011.The European model CACs can be found on the EFC’s website.

Modifications CACs

The CACs shall distinguish two types of modifications of the borrowing conditions that can be made with approval of the majority of the bondholders in a bondholder meeting. (1) A reserved matter modification, involving the modification of a bond’s most important terms and conditions, such as a reduction in the principal or interest payable on a bond, or changes in the dates on which these payments must be made. These modifications require the highest level of bondholder consent. (2) A non-reserved matter modification, involving the modification of a bond’s less important terms and conditions (broadly speaking, any modification, amendment, supplement or waiver of the Trust Indenture or the terms and conditions of the Bonds requiring the consent of Holders that does not constitute a reserved matter). and requiring a lower level of bondholder consent. Under the CAC, a modification may be proposed in relation to either a single bond, a so-called single-series modification, or to more than one bond at the same time, a so-called cross-series modification. Different approval thresholds apply to single-series and cross-series modifications. In all events, a proposed modification will require the issuer’s consent. Modifications, if approved, are binding for all bondholders.

CACs in Dutch bonds

Following the EFC’s decision, the borrowing conditions of all new issues of Dutch euro and dollar bonds, notes and other debt instruments with a maturity of more than one year will contain these harmonized CACs from 2013 onwards. In order to implement the CACs, a new Article referring to the CACs has been added to the general conditions of the borrowing conditions. The text of the CACs can be found on the website of the DSTA. Please note that the original English text of the CACs is leading above its Dutch translation.

The introduction of the European model CACs will not affect any Dutch bonds issued prior to 1 January 2013. At its summit held on 24-25 March 2011, the European Council concluded that all euro area Member States should be allowed, under agreed conditions, to reopen debt issuances outstanding on the date of the CAC’s mandatory introduction, in order to preserve market liquidity.