It seems sensible, therefore, to consider to what extent the sovereign sector can borrow from the ideas11 discussed by the ILG and others in developing principles governing multi-creditor global corporate workouts that are more appropriate to modern financial markets. I take considerable encouragement from the fact that, in recent months, a number of different private sector groups have published views on ”best practice” principles that might underlie sovereign debt workouts. Although there are inevitably differences between the various groups, in all cases a collaborative framework to facilitate negotiations and co-operation between a sovereign debtor and its creditors, and also to overcome possible co-ordination problems between different creditor groups, seems to be envisaged. These general principles seem to me to have much in common with the themes underlying the ILG’s corporate workout principles. They also include several other suggestions to enhance creditor co-ordination, such as the inclusion of collective action clauses in bond contracts and, more widely, the use of ”creditor country clubs” as a conduit for information exchanges. The key to all this is, in my view, the creditor co-ordination issue. A failure of creditor co-ordination in the sovereign context can lead to cancellation of longer-term investment projects and protracted exclusion from international capital markets. The private sector groups argue that, when a sovereign encounters financial difficulties likely to trigger a debt default, it should encourage a process of dialogue between the affected creditors and the sovereign.

Where we have tried to add value in recent years has been in promulgating the London Approach abroad and in working to develop the framework in the light of recent innovations and developments in global financial markets. Several issues have loomed large. One is the applicability of the unanimity requirement given the proliferation in the number and type of creditors in any large international workout. Another is the lack of a formal moratorium over all or part of the period of resolution of a company’s problems, as distinct from the informal standstill of the London Approach during the initial period of collecting all available information and evaluating the company’s long-term prospects. More broadly, the extent to which the Approach is affected by developments such as securitisation, loan trading and credit derivatives is exercising our minds and those of others closely involved in corporate workouts. These issues raise potentially very tricky questions. For example, loan trading arguably makes the creditor co-ordination problem more challenging, but at the same time provides an exit route for those unwilling to be involved in the restructuring and an entry for specialist turnaround investors. Credit derivatives raise a different set of issues, because they need not involve transfers of the company’s debt until, in the case of physical settlement, a credit event occurs. The knowledge that debt will change hands following a credit event might, however, affect the incentives facing the company, its ”pre-credit event” creditors and its potential ”post-credit event” creditors in unpredictable ways.