A Long Road to Nowhere: The Legal and Remedial Futility of Challenges to a Restricted Single-Limb CAC Retrofit of Local-Law Italian Debt Stock

Abstract

As a Eurozone sovereign in desperate need of a debt restructuring, Italy faces the paradoxical pressures of protecting its domestic economy and access to international debt markets while also conducting this restructuring in a way that aligns with Eurogroup supranational policy goals. By implementing a single-limb CAC subject to important restrictions and protections, Italy can effectively obtain the relief it desperately needs while minimizing local-law legal challenges and without running afoul of the intent and purpose of the Treaty Establishing the European Stability Mechanism. This paper recommends the retrofitting of a single-limb CAC on to all of Italy’s local-law debt stock. This CAC would be subject to three important restrictions. First, that it would only allow for the extension of maturities, with the length of the extension to be agreed upon by the Issuer and the holders of 50% of the outstanding principal of affected bonds. Second, the CAC would require that all affected bonds be treated identically, receiving an equal maturity extension. Third, voting would be limited to only those bonds actually affected by changes proposed under these CACs, and calculations regarding what constitutes 50% of outstanding principal would only include principal of actually affected bonds.