New York lawmakers have moved to limit how much creditors can recover from defaulted sovereign debt in the state’s jurisdiction, proposing to rewrite the law that governs about half of the foreign currency bonds issued by governments across emerging markets.
Draft legislation submitted to the New York State Assembly last week resurrected a proposal for the state’s courts to limit creditors’ recoveries on debts governed under New York law to what is typically accepted under international “burden-sharing standards”. That has set up a confrontation with investors who say it will disrupt markets.
The proposed “sovereign debt stability act” would cap the amount investors could recover to what the US government would receive if it were a creditor to the same country, or allow debtors to submit their own restructuring plans through the New York legal system.