During the course of 2024 the conditions of new Dutch government bonds are expected to contain the so-called single-limb collective action clauses. Since 1 January 2013 the State of the Netherlands, acting through the Dutch State Treasury Agency, has issued government bonds with collective action clauses (CACs).
After the restructuring of Argentina’s debt in 2003, the international community decided that CACs would be included in international debt issuance. This would facilitate international efforts for an orderly restructuring in the event of a sovereign debt crisis.
The objective of these provisions is to establish a procedure in case amendments to one or more series of a bond (a tradeable instrument representing a loan) of a state are required to be made. If the majority of the bondholders agree to the proposed amendment, all bondholders of that series are bound to such amendment.
On 2 February 2012, a modified version of the Treaty establishing the European Stability Mechanism (ESM) 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. The Economic and Financial Committee (EFC) developed and approved the European model CACs (the SL 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 first European model CACs can be found on the website of the EFC.
On 27 January 2021 and 8 February 2021 a further revised Treaty Establishing the ESM was signed by all Member States in the euro area. The revised Treaty provides in the last sentence of article 12 paragraph 3 that all bonds issued by member states of the euro area after 1 January 2022 should contain a further revised version of the CAC, the so-called single limb CAC. As before, this obligation to include a CAC applies to all bonds with an initial maturity of more than one year. In line with the previous version, the EFC has developed and approved a revised European model CAC. The revised European model SL CAC can be found on the website of the EFC (Collective Action Clauses in the Euro area (europa.eu)). Currently the amended ESM Treaty is not yet fully approved by all member states. To ensure a coordinated and harmonised introduction of the new SL CACs, the member states agreed to introduce the new SL CAC two months after the date on which the ratification of the ESM amendment agreement by all relevant members states is effective and not on 1 January 2022. As soon as the implementation date is known, the DSTA will inform potential investors and other market participants hereof.
Modifications CACs
The CACs distinguish two types of modifications to the terms and conditions. Modifications can be made with approval of the majority of the bondholders in a bondholder meeting.
The two types of modifications are:
(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 of 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 other 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. It is also possible to propose modifications in relation to more than one bond series 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. In case of Dutch State Loans, the issuer is The State of The Netherlands. Modifications, if approved, are binding for all bondholders of relevant series.
As a result of the new SL CACs and in case of cross-series modifications, a modification is approved if bondholders representing 66 2/3 % (or 50 % in case of a non-reserved matter) of the principal amount of all series of relevant bonds is met. In order to protect the bondholders, only series of bonds may be aggregated if the proposal is uniformly applicable. In other words, the percentage is measured by reference to all creditors whose interests are substantially equally impacted if the modification is approved. The new SL CACs are also referred to “single limb” CACs. In the previous version of the CACs the outcome of the voting per separate series was also taken into account to determine whether a majority has been reached. Other than the move to a “ single limb” CAC no other amendments have been made to the wording of the original CACs.
CACs in bonds issued by the Dutch State
Following the EFC’s decision, the borrowing conditions of all issuances by the State of The Netherlands of 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. The borrowing conditions of the bonds include a provision pursuant to which the CACs are explicitly incorporated into the borrowing conditions. Depending on the initial issuance date of the bond this either concerns the original CACs or the revised CACs. The wording of the CACs can be found on this website. Please note that the original English language version prevails over the Dutch translation.
The introduction of the original European model CACs will not affect any Dutch bonds issued prior to the 1 January 2013. Also bonds with an original issuance date prior to the entry into force of the SL CACs will not be changed as a result of the (single limb) CACs. The European Council concluded that all euro area Member States should be allowed, under agreed conditions, to reopen debt issuances outstanding on the implementation date of the relevant CACs in order to preserve market liquidity.
The table below sets out which version of the CACs applies to bonds issued by the Dutch State. The terms and conditions of the bonds always set out definitively which version is applicable.
|
Initial issuance date |
Prior to 1 January 2013 |
As of 1 January 2013 until implementation date of the SL CACs |
To be announced |
|
No CACs are applicable |
2013 CACs apply |
SL CACs apply |
|
|
Link to relevant CAC model |
Not applicable |
CAC - DSL Initial Issuance Date between 1 January 2013 and intro SL CAC - Terms of Reference |
CAC - DSL Initial Issuance Date as of intro SL CAC - Terms of Reference |