WEBVTT - Here’s How Messy a Russian Bond Default Could Be 0:00:05.840 --> 0:00:09.080 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:09.200 --> 0:00:13.760 I'm Tracy Allaway and I'm Joe. Did you know that 0:00:13.880 --> 0:00:17.360 I have a sort of side hobby in the history 0:00:17.440 --> 0:00:22.280 of Russian debt? I thought it was Chinese debt. It's both. 0:00:22.320 --> 0:00:26.840 Actually they kind of fit together, um for reasons that 0:00:26.920 --> 0:00:30.800 I could tell you about much later on. But it's 0:00:30.800 --> 0:00:34.280 a really interesting topic all around and throughout history. Russian 0:00:34.280 --> 0:00:37.280 debt has, you know, for at least a couple of times, 0:00:37.280 --> 0:00:40.800 sort of burst into the public consciousness, the first time 0:00:41.000 --> 0:00:45.360 in the early nineteen hundreds with the eighteen default on 0:00:45.720 --> 0:00:52.040 Czarist imperial bonds, and then with another I think it 0:00:52.080 --> 0:00:55.080 was a near default in the end on Brady bonds 0:00:55.840 --> 0:00:59.959 that were issued by Russia. And now we're in another moment, 0:01:00.000 --> 0:01:02.840 moment where it seems like everyone's going to be talking 0:01:02.880 --> 0:01:06.000 about Russian debt yet again, are there other holders of 0:01:06.040 --> 0:01:11.640 those early who are obscure courts somewhere trying to collect? Uh? 0:01:11.680 --> 0:01:14.559 There are a lot of investors who throughout the years 0:01:14.560 --> 0:01:18.080 have tried to collect on Czarist imperial debt. Yes, but 0:01:19.360 --> 0:01:21.600 we have to talk about what's happening right now, which 0:01:21.600 --> 0:01:27.640 could also lead to a protract protracted series of litigation 0:01:27.800 --> 0:01:31.720 in various courts. But we're recording this on Wednesday, March sixteen, 0:01:32.360 --> 0:01:35.160 and it is the day that Russia is supposed to 0:01:35.280 --> 0:01:39.280 be paying about a hundred seventeen million dollars worth of 0:01:39.280 --> 0:01:43.000 interest on two dollar bonds. And the question is not 0:01:43.160 --> 0:01:46.720 only is it going to be able to pay those bonds, 0:01:46.920 --> 0:01:50.560 but what happens on other types of bonds? Is it 0:01:50.600 --> 0:01:53.040 going to pay those out in rubles? Are those going 0:01:53.080 --> 0:01:58.240 to constitute a default? What jurisdiction, could litigation actually happen 0:01:58.320 --> 0:02:02.440 in There are so many questions and swirling around this depth. Well, 0:02:02.520 --> 0:02:05.040 to me, part of the question is like, okay, what 0:02:05.200 --> 0:02:08.280 we think of a country defaulting on its bonds and 0:02:08.320 --> 0:02:11.280 then it goes in It gets punished by the market 0:02:11.360 --> 0:02:13.520 in some way, it's out of the market for a 0:02:13.560 --> 0:02:15.680 long time. Investors don't want to touch it. But it 0:02:15.760 --> 0:02:18.560 feels like in the case of Russia, due to the 0:02:18.600 --> 0:02:22.880 sanctions and the voluntary sanctions, it's already been cut off 0:02:22.919 --> 0:02:25.040 from the world. I mean, it's hard to imagine what 0:02:25.240 --> 0:02:28.079 is the scenario enrich Russia gets more cut off from 0:02:28.080 --> 0:02:31.240 the world. Part of me is wondering, even if as 0:02:31.280 --> 0:02:34.280 they do pay bonds. How given the cut off of 0:02:34.600 --> 0:02:38.040 you know, banks and other financial intermediaries, so how literally 0:02:38.400 --> 0:02:41.400 do you make the payment? Obviously, they're the questions of 0:02:41.720 --> 0:02:44.560 does Russia even have the hard courrege here of the 0:02:44.600 --> 0:02:47.880 access after having lost so much access to uh its 0:02:48.080 --> 0:02:51.680 f X reserves. So there are all kinds of reasons 0:02:51.720 --> 0:02:55.200 why obviously the default is in question, or the sort 0:02:55.240 --> 0:02:57.400 of question about payments, but also like what does it 0:02:57.440 --> 0:03:00.920 even mean to default in this environment? Right? And do 0:03:01.000 --> 0:03:04.920 the normal sort of mechanisms of push and pull actually apply. 0:03:05.680 --> 0:03:08.440 Um So I'm very pleased to say that we really 0:03:08.480 --> 0:03:10.600 do have the perfect guests to talk about this. We 0:03:10.639 --> 0:03:13.440 are going to be speaking with Mittu Kulati. He's a 0:03:13.440 --> 0:03:16.280 professor of law at University of Virginia. He's also been 0:03:16.280 --> 0:03:18.480 on the show i think a number of times at 0:03:18.520 --> 0:03:21.520 this point and is an all round expert in the 0:03:21.560 --> 0:03:24.800 topic of sovereign debt. We also have Mark Wedemeyer. He 0:03:24.919 --> 0:03:28.480 is a professor of law at University of North Carolina. 0:03:28.639 --> 0:03:30.720 So thank you so much to you both for coming 0:03:30.720 --> 0:03:34.079 on all thoughts, You're welcome, thanks for having us. So 0:03:34.240 --> 0:03:37.160 maybe we should just start with a big picture question, 0:03:37.640 --> 0:03:42.960 how unusual is the situation that we currently find ourselves 0:03:43.080 --> 0:03:45.600 in when it comes to Russian debt, are there any 0:03:45.640 --> 0:03:48.720 historic parallels that we can look to? You know, I 0:03:48.760 --> 0:03:52.800 mentioned Russia has defaulted on its a couple of times previously, 0:03:52.960 --> 0:03:57.080 But how much do those historic situations actually apply to 0:03:57.640 --> 0:04:00.920 the current events. It is him think to say that 0:04:00.960 --> 0:04:07.440 there aren't historical precedents, and there probably isn't anything directly 0:04:07.520 --> 0:04:10.960 on point, although maybe Mark will correct me, since he 0:04:10.960 --> 0:04:13.240 knows bits of this history a lot better than I do. 0:04:13.720 --> 0:04:19.359 But in the last century, in the century prior, where 0:04:19.400 --> 0:04:23.840 there was lots of sovereign debt being issued, most sovereign 0:04:23.920 --> 0:04:28.400 debt was issued in order to finance wars, and when 0:04:28.480 --> 0:04:31.800 war would break out, some countries stopped paying because they 0:04:31.839 --> 0:04:34.640 had to use the money to fight wars, or they 0:04:34.640 --> 0:04:38.680 stopped paying because some of the investors were located in 0:04:38.720 --> 0:04:41.719 the country that it was fighting against. So many of 0:04:41.760 --> 0:04:46.200 the questions that we are asking today literally today, did 0:04:46.320 --> 0:04:50.760 come up and were analyzed by the leading international law 0:04:50.880 --> 0:04:54.479 experts of the time. It's just that it was over 0:04:54.520 --> 0:04:58.080 a hundred years ago and today we've all forgotten what 0:04:58.160 --> 0:05:01.839 those answers were. Now, those of us who are concerned 0:05:01.839 --> 0:05:06.840 about this are busy dredging up are really old international 0:05:06.920 --> 0:05:09.800 law books to figure out what happens in this context. 0:05:10.320 --> 0:05:12.360 But I don't know if Mark has at different read 0:05:12.440 --> 0:05:15.240 of this history. No, I think that that's right. I 0:05:15.279 --> 0:05:19.840 think that the difference here is that we have kind 0:05:19.839 --> 0:05:26.000 of forgotten in the modern world just how much geopolitical 0:05:26.560 --> 0:05:32.600 tension sometimes companies. Uh, let's assume by the time your 0:05:32.680 --> 0:05:35.880 listeners here this, there's been a Russian default. We've kind 0:05:35.880 --> 0:05:40.040 of forgotten how much geopolitical tension often is associated with that. 0:05:40.160 --> 0:05:44.560 And we've gotten used to thinking about private creditors and 0:05:44.640 --> 0:05:48.359 their enforcement rights, and what the role of litigation is 0:05:48.440 --> 0:05:51.040 and so forth, and so in some ways, what's unique 0:05:51.040 --> 0:05:55.360 about this is the combination of those two things. Explain 0:05:55.480 --> 0:05:58.320 that further. I mean, you know, it's easy to think 0:05:58.360 --> 0:06:02.799 of some of the potential locations. Obviously, there's the sanctions 0:06:02.839 --> 0:06:06.960 you mentioned, the role of private creditors, their ability ability 0:06:07.040 --> 0:06:10.360 to enforce their payout. I mean, it's inconceivable, I guess, 0:06:10.440 --> 0:06:14.479 to even imagine what a jurisdiction or what court things 0:06:14.480 --> 0:06:17.560 would apply at these days with the sanctions. But talk 0:06:17.640 --> 0:06:20.800 to us a little bit more about how complicated this 0:06:21.240 --> 0:06:25.000 situation is. From a historical perspective. Well, it's it's it's 0:06:25.000 --> 0:06:28.839 complicated in all kinds of ways. One of them is 0:06:28.920 --> 0:06:34.640 that you've got, at the one point, this really tempting 0:06:34.800 --> 0:06:39.960 set of targets Russian assets that are frozen abroad, assets 0:06:40.000 --> 0:06:43.359 belonging to agents who are maybe acting on behalf of 0:06:43.360 --> 0:06:46.880 the Russian government. And yet you know, the reality is 0:06:46.920 --> 0:06:49.599 nobody who is a creditor of the government is going 0:06:49.640 --> 0:06:55.039 to be able to find enough assets to sees and 0:06:55.240 --> 0:06:58.599 to force the sale of and to get their claim 0:06:58.680 --> 0:07:03.719 paid in full. And this is a game for patient creditors, 0:07:03.760 --> 0:07:06.600 the gamble, as you can be enough of a pain 0:07:06.680 --> 0:07:09.359 in the butt to a country for long enough that 0:07:09.480 --> 0:07:12.960 it will decide it's better off paying you than it 0:07:13.040 --> 0:07:16.960 is to keep fighting. And you know, recent historical experience 0:07:17.000 --> 0:07:20.720 suggests the Russians are plenty capable of out waiting even 0:07:20.720 --> 0:07:24.640 the most determined kinds of creditors. So the the question 0:07:24.760 --> 0:07:30.200 is whether you expect to be able to to change 0:07:30.240 --> 0:07:34.160 that calculus in the in the near future. Can I 0:07:34.200 --> 0:07:38.560 ask Mark a question that my students have been asking me. Mark, 0:07:38.600 --> 0:07:42.239 I know you are literally the world's leading expert on 0:07:42.880 --> 0:07:47.200 this concept of veil piercing in the sovereign debt context, 0:07:48.000 --> 0:07:54.680 can creditors, even at a low probability UH estimation, go 0:07:54.920 --> 0:08:00.680 after any of the oligarch assets. My sense from reading 0:08:00.720 --> 0:08:05.760 your writing is this is not utterly implausible, but I 0:08:05.800 --> 0:08:08.000 haven't asked you the questions, so I'm asking you here 0:08:09.640 --> 0:08:13.680 it is not utterly implausible. But one way to kind 0:08:13.680 --> 0:08:17.320 of set a baseline here is to recognize that there 0:08:17.360 --> 0:08:21.360 have been creditors the for the UK shareholders and others 0:08:21.400 --> 0:08:25.800 who have been doing exactly this thing, going after Russian 0:08:26.000 --> 0:08:31.160 state owned enterprises, going after individuals for years and years 0:08:31.160 --> 0:08:35.720 and years on this theory that these other people were 0:08:35.760 --> 0:08:38.520 really the alter egos of the Russian government, and for 0:08:38.559 --> 0:08:41.439 the most part they have struck out. So I guess 0:08:41.440 --> 0:08:44.360 the question I would be asking myself if I were 0:08:44.640 --> 0:08:47.880 a creditor now is whether I think courts are going 0:08:47.920 --> 0:08:53.800 to be more receptive to that argument, both because the 0:08:54.200 --> 0:08:59.080 tensions between the of the home states of these courts 0:08:59.120 --> 0:09:01.400 and the Russian government men are so much greater, but 0:09:01.480 --> 0:09:04.960 also maybe courts are going to be more aware of 0:09:05.040 --> 0:09:10.200 how the Russian government acts through intermediaries abroad. If you 0:09:10.240 --> 0:09:13.079 think that courts are suddenly going to get more receptive 0:09:13.080 --> 0:09:15.880 to those arguments, then you know, maybe this seems like 0:09:16.120 --> 0:09:18.760 a much more appealing prospect, but it hasn't had any 0:09:18.840 --> 0:09:21.520 luck so far. I want to get into a lot 0:09:21.559 --> 0:09:24.440 of these jurisdiction questions, but maybe before we do, we 0:09:24.480 --> 0:09:27.840 could talk a little bit about what Russian debt actually 0:09:27.960 --> 0:09:31.880 is and how it's structured, because I think the country 0:09:32.000 --> 0:09:34.640 as a whole has about a hundred fifty billion in 0:09:34.800 --> 0:09:37.360 foreign currency debt, and that's issued by the government and 0:09:38.080 --> 0:09:41.360 you know, big companies like gas Prom, But within the 0:09:41.400 --> 0:09:46.160 subset of bonds actually issued by the Russian sovereign there 0:09:46.200 --> 0:09:50.240 are different types of debt, and this is something that 0:09:50.280 --> 0:09:53.679 the market is starting. It seems to focus on the 0:09:53.720 --> 0:09:57.400 difference between certain bonds versus others. And some of these 0:09:57.440 --> 0:10:01.960 bonds have something called, you know, an alternative payment currency 0:10:02.080 --> 0:10:06.160 event clause, which a lot of people are digging into 0:10:06.200 --> 0:10:09.320 at the moment. Could you maybe explain to us exactly 0:10:09.360 --> 0:10:12.440 what that looks like and how normal it is to 0:10:12.559 --> 0:10:17.280 see those in a sovereign debt. So these clauses are 0:10:17.320 --> 0:10:21.920 are not normal at all. And we looked a lot 0:10:22.000 --> 0:10:26.040 at the Russian debt, Russian Ukrainian debt at the time 0:10:26.120 --> 0:10:30.920 of the Crimean invasion two fourteen, and we realized then 0:10:31.000 --> 0:10:34.319 that some of these terms and that was debt that 0:10:34.480 --> 0:10:40.280 Russia had lent to the the dictator in Ukraine at 0:10:40.320 --> 0:10:42.800 the time in order to prop him up. And we 0:10:42.920 --> 0:10:49.040 realized then that desponds wild structured as international euro bonds, 0:10:49.320 --> 0:10:53.800 have some weird clauses in them, unusual. And you guys 0:10:53.880 --> 0:10:58.720 know this market, this is a market completely dominated by boilerplate, 0:10:59.160 --> 0:11:03.840 where it's just cut and paste transactions that don't take 0:11:03.880 --> 0:11:06.800 more than a few minutes. And we knew then that 0:11:06.880 --> 0:11:12.199 Russia was doing weird things. Now, this alternate payments clause, 0:11:12.600 --> 0:11:17.280 I have only seen it in the recent Russian bonds. Literally, 0:11:17.320 --> 0:11:22.040 the bonds issued after the Crimean invasions seem to have 0:11:22.120 --> 0:11:29.559 a clause in them that anticipates Russia misbehaving and sanctions 0:11:29.600 --> 0:11:34.400 being increased. I mean, it is astonishing to read the 0:11:34.480 --> 0:11:39.640 risk disclosures in these bonds. I think there's something like 0:11:39.800 --> 0:11:44.000 seven or eight pages. Uh, and Mark can correct me, 0:11:44.120 --> 0:11:47.200 seven or eight pages talking about all the bad things 0:11:47.240 --> 0:11:50.880 that Putin has done, invade here, you know, take over 0:11:51.000 --> 0:11:55.240 their human rights violation somewhere else, and telling investors, look, 0:11:55.480 --> 0:11:57.840 you know there might be sanctions, and if there are sanctions, 0:11:57.880 --> 0:12:01.560 we're gonna pay in rubles. As Mark articulated it to 0:12:01.640 --> 0:12:05.920 me a couple of days ago, it's as if the 0:12:06.040 --> 0:12:13.080 investors are, uh, I'm giving putin insurance for doing bad stuff, 0:12:13.440 --> 0:12:16.720 and that the true irony is that many of these 0:12:16.720 --> 0:12:20.559 investors are the ones who have been running around touting 0:12:21.240 --> 0:12:25.400 their E. S G. Cred and at the same time 0:12:25.440 --> 0:12:30.320 they're giving putin insurance to you know, take over Ukraine. 0:12:30.360 --> 0:12:34.679 Now I'm I'm probably overstating this, but yes, these clauses 0:12:35.000 --> 0:12:38.240 are very weird, and there are a form of insurance 0:12:38.280 --> 0:12:43.600 protection for Russian misbehavior. You know, it's interesting to hear 0:12:43.960 --> 0:12:47.400 the nature of these bonds issued after the annexation of Crimea. 0:12:47.559 --> 0:12:52.600 And I guess the degree to which that incident that 0:12:52.840 --> 0:12:57.440 hostile uh, that hostile act did not seem to phase uh, 0:12:57.600 --> 0:13:00.000 so many players across the rest of Europe. And I'm 0:13:00.120 --> 0:13:02.880 thinking also about a recent episode that we did on 0:13:03.080 --> 0:13:06.160 natural gas and you think, okay, that could have been 0:13:06.360 --> 0:13:10.760 a moment where say, you know, countries decided, well maybe 0:13:10.760 --> 0:13:13.360 we shouldn't be some reliant on Russian natural gas. Uh. 0:13:13.480 --> 0:13:16.160 Nothing changed. And now if you're describing kind of the 0:13:16.200 --> 0:13:19.280 same phenomenon where you say these E s G. Minded 0:13:19.400 --> 0:13:23.920 investors saw the annexation. Then Russia went on to put 0:13:24.000 --> 0:13:26.599 in these clauses. Can you just can you talk a 0:13:26.679 --> 0:13:30.600 little bit about more what specifically are in these clauses, 0:13:30.960 --> 0:13:32.880 what do they say, and then what do they mean 0:13:32.960 --> 0:13:36.320 right now? And I shouldn't know just briefly for those 0:13:36.360 --> 0:13:39.440 who don't have a terminal looking at terminal, and I 0:13:39.440 --> 0:13:41.960 don't know about the specifics here, but you know, obviously 0:13:42.040 --> 0:13:46.000 Russian bond prices have been absolutely killed. Dollar bonds that 0:13:46.040 --> 0:13:48.680 were over a hundred on the dollar at the beginning 0:13:48.679 --> 0:13:51.560 of February now around eleven sends, some more short term 0:13:51.559 --> 0:13:55.440 euro bonds UH in the thirties. So just for the 0:13:55.520 --> 0:13:59.960 context here, all types of you know, Russian Russian liabilities 0:14:00.000 --> 0:14:02.839 having been killed. But why don't we talk more specifically 0:14:02.880 --> 0:14:05.840 about what is in these clauses and what they mean 0:14:05.960 --> 0:14:10.719 for for lenders. Basically, the clauses say that if for 0:14:10.800 --> 0:14:14.960 reasons beyond Russia's control, I don't know if that's an 0:14:14.960 --> 0:14:18.880 exact quote, but it's pretty close, if for reasons beyond 0:14:18.920 --> 0:14:23.320 its control, it can't come up with whatever currency the 0:14:23.360 --> 0:14:26.960 bond is denominated in, then there's a list of kind 0:14:26.960 --> 0:14:30.120 of heart currencies that it falls back on, and if 0:14:30.160 --> 0:14:32.520 for reasons beyond its control, it can't come up with 0:14:32.560 --> 0:14:35.920 one of those, then it pays in rubles, and they don't. 0:14:36.000 --> 0:14:39.200 They don't say anything beyond that. And so the question 0:14:39.240 --> 0:14:43.520 really is for this subset of the Russian bonds, whether 0:14:43.640 --> 0:14:50.200 the sanctions regime UH and the inability to access foreign exchange, 0:14:50.360 --> 0:14:55.360 whether that it constitutes a circumstances outside Russia's control, or 0:14:55.400 --> 0:14:57.920 whether really the whole thing is within Russia's control, because 0:14:57.960 --> 0:15:00.760 they could just turn the tanks around and presumably the 0:15:00.800 --> 0:15:03.880 sanctions would be lifted. There's something else that's in the 0:15:03.920 --> 0:15:08.480 bonds that's relatively unusual, or I should say there's something 0:15:08.520 --> 0:15:12.240 that's lacking in the bonds. Um, it doesn't include a 0:15:12.240 --> 0:15:15.520 waiver of immunity, I think, or a clause that sort 0:15:15.520 --> 0:15:18.640 of submits to the jurisdiction of foreign courts. Can you 0:15:18.680 --> 0:15:22.320 explain exactly what that means and how it relates to 0:15:22.840 --> 0:15:26.800 you know, for instance, if Russia said, um, it can't 0:15:26.840 --> 0:15:29.760 necessarily do this today, but on future payments, if it said, well, 0:15:30.120 --> 0:15:32.720 for reasons outside of our control, we're going to pay 0:15:32.800 --> 0:15:37.440 these bonds in rubles instead of dollars or euros, and 0:15:37.480 --> 0:15:41.000 then foreign investors decide, hey, we don't like that. We're 0:15:41.000 --> 0:15:44.080 going to take Russia to court to argue against this. 0:15:45.120 --> 0:15:47.960 What does it mean from a jurisdictional perspective are they 0:15:47.960 --> 0:15:50.360 going to be able to do that? So this is 0:15:50.400 --> 0:15:54.840 the perfect follow up question to what Joe asked. So 0:15:54.920 --> 0:15:59.000 you have this clause that, as Mark described, says, you know, 0:15:59.040 --> 0:16:03.320 if for reasons beyond our control, uh, we are unable 0:16:03.360 --> 0:16:08.320 to pay in dollars franks, uh um euros, we'll pay 0:16:08.360 --> 0:16:13.360 you in brubles. But the contract doesn't say who gets 0:16:13.360 --> 0:16:18.480 to determine beyond control? I mean, does putin get to determine? Oh, 0:16:18.640 --> 0:16:21.440 I've I've decided you can't pay in dollars anymore. So 0:16:21.520 --> 0:16:24.600 it's beyond the control of the treasury to pay. And 0:16:25.000 --> 0:16:28.280 normally when you would have a question like this, the 0:16:28.360 --> 0:16:32.200 place you would go is you would go to the 0:16:32.360 --> 0:16:36.520 jurisdiction clause and the bonds to see where do these 0:16:36.560 --> 0:16:40.640 cases get brought? Where has the sovereign submitted to jurisdiction, 0:16:40.920 --> 0:16:44.840 Where has it waived its immunity and these bonds again, 0:16:45.120 --> 0:16:49.040 and this is unusual again, and it is our fault 0:16:49.080 --> 0:16:52.640 for not noticing this or paying greater attention to this 0:16:52.800 --> 0:16:57.200 before the clauses explicitly say we have not submitted to 0:16:57.280 --> 0:17:02.080 jurisdiction anywhere. And the clauses explicitly say we have not 0:17:02.240 --> 0:17:07.200 weve sovereign immunity. Now here's the twist, though, I think 0:17:07.280 --> 0:17:12.880 on first reading, if you are not a jurisdiction specialist, 0:17:14.680 --> 0:17:17.800 you would think okay. So basically they can't be taken 0:17:17.840 --> 0:17:20.840 into court anywhere. They have not waved sovereign immunity and 0:17:20.840 --> 0:17:26.159 they don't submit to jurisdiction anywhere. That is wrong because 0:17:26.240 --> 0:17:30.640 if you go out and reach investors and sell them 0:17:30.720 --> 0:17:34.080 dollar bonds or you send them Euro bonds, and you 0:17:34.200 --> 0:17:37.040 do that in New York or London, even though you 0:17:37.200 --> 0:17:41.280 say I don't agree to jurisdiction anymore, the courts there 0:17:41.359 --> 0:17:45.400 can say, hey, you came into our jurisdiction, you sold investor. 0:17:45.440 --> 0:17:50.800 Response here we are taking jurisdiction and you're engaged in 0:17:50.840 --> 0:17:54.560 commercial activity, so we are deeming you to have waves 0:17:54.640 --> 0:17:58.359 sovereign immunity. So in a sense, Russia might think that 0:17:58.440 --> 0:18:02.199 they haven't consented to any of these court jurisdiction, but 0:18:02.359 --> 0:18:14.600 I think that would be wrong. Can I ask, what 0:18:14.800 --> 0:18:18.600 is the consequence of actually defaulting? So Russia may have 0:18:19.040 --> 0:18:23.760 means at its disposal to avoid technically defaulting. Okay, doesn't 0:18:23.800 --> 0:18:26.920 pay in dollars or some other hard currency, but it 0:18:27.600 --> 0:18:31.600 pays in rubles, so okay, technically it avoids default. But again, 0:18:31.680 --> 0:18:34.920 you know, in the context of this very unusual situation, 0:18:35.000 --> 0:18:37.960 what does that even mean Because normally we think about, 0:18:38.080 --> 0:18:41.159 you know, sort of catastrophic consequences for a country that 0:18:41.200 --> 0:18:45.520 doesn't pay. Uh, it's for creditors. But in this situation, 0:18:46.119 --> 0:18:49.200 Russia is already dramatically cut off in a way that's 0:18:49.200 --> 0:18:51.720 far worse than what we would expect to see any 0:18:52.080 --> 0:18:54.600 sovereign debt or experience in the event of a default. 0:18:55.359 --> 0:18:59.200 So this is the hard question. I think that investors 0:18:59.440 --> 0:19:02.360 are faith sing. It's kind of hard to know what 0:19:02.400 --> 0:19:07.240 to make of the Let's assume again that there has 0:19:07.280 --> 0:19:11.359 been a default by the time the episode airs. Your choices, 0:19:12.200 --> 0:19:16.440 I could accelerate the bond and I could decide I'm 0:19:16.440 --> 0:19:18.800 going to go to court, as me Too says, I 0:19:18.800 --> 0:19:22.320 can probably convince a court in London or maybe New 0:19:22.359 --> 0:19:25.000 York to take jurisdiction. But if I do this, I'm 0:19:25.320 --> 0:19:28.040 in it. For the long haul. You know, I'm I'm 0:19:28.080 --> 0:19:31.880 gonna I've picked my path, and I'm gonna be fighting 0:19:31.880 --> 0:19:35.399 with the Russian government for god knows how many years 0:19:35.400 --> 0:19:38.239 into the future. Or I can sit around and I 0:19:38.320 --> 0:19:41.359 can hope that this thing resolves in a way that 0:19:41.400 --> 0:19:45.200 allows for the resumption of payments. I have to think 0:19:45.240 --> 0:19:49.119 that for most investors, maybe not for the die hard 0:19:49.520 --> 0:19:52.920 subset who liked the litigation game, but for most investors, 0:19:53.680 --> 0:19:57.320 going to court and accelerating the dead is a pretty 0:19:57.600 --> 0:20:01.199 unappealing prospect right now. But we'll see it. The longer 0:20:01.240 --> 0:20:05.640 this drags out, the more that calculus might change me too. 0:20:05.680 --> 0:20:08.359 I don't know, maybe you have a different view of it. No. 0:20:08.600 --> 0:20:11.600 In fact, my view in some ways, unless Mark you 0:20:11.680 --> 0:20:15.560 figure out a way we could start attaching those oligarch assets, 0:20:15.760 --> 0:20:20.200 is that if you're really only chasing the Russian state. Uh, 0:20:20.359 --> 0:20:23.880 this is difficult, and we could probably take some lessons 0:20:23.920 --> 0:20:29.720 here from the attempts of jilted investors to chase after 0:20:29.880 --> 0:20:36.040 the Russian state for expropriation in the Yukost case. Uh this, 0:20:36.920 --> 0:20:39.360 you know, I think bond investors haven't really paid very 0:20:39.400 --> 0:20:43.040 much attention to this, But there's basically, I think it's 0:20:43.160 --> 0:20:48.359 upwards of sixty billion dollars in claims that for which 0:20:48.720 --> 0:20:53.719 jilted investors have received judgments against Russia, and Russia just 0:20:54.080 --> 0:20:57.399 have no intention of paying, and the markets don't seem 0:20:57.440 --> 0:21:02.600 to have penalized Russia for this uh in the recent past, 0:21:03.320 --> 0:21:07.320 continuing to believe, oh, maybe they'll behave well with respect 0:21:07.320 --> 0:21:10.480 to the bonds, even though they're behaving so badly with 0:21:10.560 --> 0:21:14.360 respect to other claims. And you know that. I mean, 0:21:14.400 --> 0:21:18.119 this is what we all talked to our students about 0:21:18.200 --> 0:21:22.600 reputational consequences and how the sovereign debt market is. UH, 0:21:22.640 --> 0:21:27.000 it is such a robust reputational market, it might mean, 0:21:27.200 --> 0:21:30.240 you know, the the recent experience maybe makes us think 0:21:30.280 --> 0:21:33.399 that's complete ble. I mean, you sort of touched on 0:21:33.400 --> 0:21:36.720 this um before, But when we talk about going after 0:21:37.200 --> 0:21:41.800 oligarch's assets, I'm getting flashbacks to you know, Paul Singer 0:21:42.000 --> 0:21:45.879 seizing at Argentine boat and stuff like that. To what 0:21:46.080 --> 0:21:52.760 extent could it be possible that the legal industry they're 0:21:52.960 --> 0:21:57.440 less sympathetic to Russia in this context, or that they 0:21:57.560 --> 0:22:00.800 harden up their view of Russia and it does become 0:22:00.880 --> 0:22:04.720 easier to pursue those assets. I mean, to some extent, 0:22:04.720 --> 0:22:06.600 we've already seen this, right, A lot of things have 0:22:06.720 --> 0:22:09.159 changed over the past two weeks. Things that we thought 0:22:09.520 --> 0:22:13.080 were difficult to push through legally seemed to have been 0:22:13.119 --> 0:22:16.240 done very quickly. And if they're not done purely through 0:22:16.240 --> 0:22:20.520 the law, they've been done through self sanctioning and companies 0:22:20.520 --> 0:22:23.560 and people voluntarily cutting Russia out of the system. So 0:22:23.600 --> 0:22:28.639 I'm just wondering, is there the possibility that it begins 0:22:28.680 --> 0:22:34.480 to change? Yes, Now, what I handicap that possibility? Uh? No, 0:22:34.840 --> 0:22:36.679 I I or at least I wouldn't know how to 0:22:36.760 --> 0:22:38.879 do it. But if you think about some of the 0:22:38.960 --> 0:22:43.520 recent developments that might be relevant here, they're actually not 0:22:44.520 --> 0:22:49.720 what one would expect from the usual kind of credit 0:22:49.840 --> 0:22:53.879 or activity. They're not courts being a little more receptive 0:22:53.920 --> 0:22:56.280 to assets. There are things like the U. S. Government 0:22:56.400 --> 0:23:01.400 just deciding that it's gonna use bunch of Afghan Central 0:23:01.400 --> 0:23:05.080 Bank assets to pay some creditors. You know that the 0:23:05.600 --> 0:23:09.280 this is why the geopolitics actually matters quite a lot. 0:23:09.960 --> 0:23:13.159 It's not clear to me that the real way to 0:23:13.280 --> 0:23:18.639 get at Alagur assets here is you convince a court 0:23:18.760 --> 0:23:21.359 that they're the alter ego of the Russian government and 0:23:21.440 --> 0:23:24.480 you attach them and you have an execution sale. But 0:23:25.560 --> 0:23:31.960 governments are coming mighty close to just expropriating assets when 0:23:32.520 --> 0:23:36.120 they feel that that's necessary as part of the sanctions 0:23:36.160 --> 0:23:41.000 regime and that they've got the political support to do so. 0:23:41.119 --> 0:23:44.200 I don't I don't know whether we should expect the 0:23:44.240 --> 0:23:49.119 wholesale expropriation and redistribution of OI assets, but I do 0:23:49.240 --> 0:23:54.280 think that anybody with a bone of legal realism in 0:23:54.320 --> 0:23:57.520 their body has to think that courts and other legal 0:23:57.560 --> 0:24:00.240 actors are going to be more receptive to this kind 0:24:00.240 --> 0:24:03.439 of thing now than they were five years ago or 0:24:03.480 --> 0:24:07.080 even frankly a month ago. Presumably for the creditors, though 0:24:07.680 --> 0:24:11.560 this sort of more political expropriation as opposed to the 0:24:11.600 --> 0:24:15.000 court avenue is less appealing in the sense that if 0:24:15.040 --> 0:24:18.719 it just sort of goes through sort of political apparatus, 0:24:18.760 --> 0:24:21.600 is those those assets, aren't that's serily going to be liquidate, 0:24:21.760 --> 0:24:26.479 liquidated to the benefit of creditors. Well maybe and maybe 0:24:26.520 --> 0:24:31.240 not so. What we've seen recently with the Iranian Central 0:24:31.280 --> 0:24:35.040 Bank assets and the most recently with the Afghan Central 0:24:35.040 --> 0:24:41.760 Bank assets is that the administration, I think, using executive 0:24:41.880 --> 0:24:46.399 order and then some Congressional Action has said, you know, 0:24:46.640 --> 0:24:51.520 we're we're making these uh wide open, fat and happy 0:24:51.680 --> 0:24:56.320 for a certain subset of claimants to go after. So 0:24:56.400 --> 0:24:59.720 this is this is very different. At the beginning of 0:24:59.720 --> 0:25:05.679 the podcast, you and Tracy were talking about the analogies 0:25:07.000 --> 0:25:11.880 or in memories of the eighteen default on the tsars 0:25:12.640 --> 0:25:18.200 Um debts back then and then subsequently, you know, when 0:25:18.280 --> 0:25:24.480 Germany defaults in the Nazi era and the governments were 0:25:24.680 --> 0:25:30.400 very careful about not doing things to make enable private 0:25:30.440 --> 0:25:37.440 claimants to seize foreign state assets. Today that's completely changed. 0:25:38.240 --> 0:25:41.359 Governments are much more willing to say to private creditors 0:25:41.800 --> 0:25:46.879 they're not behaving, well, gonna make make it possible for 0:25:46.920 --> 0:25:50.880 you to seize that assets. Now. I'm not sure if 0:25:51.480 --> 0:25:55.800 President Biden will use that path today to allow Paul 0:25:55.960 --> 0:25:59.439 Singer and his lawyers to go after these assets. But 0:25:59.760 --> 0:26:03.080 if you look at who's talking in the press today, 0:26:03.160 --> 0:26:07.040 who is salivating at the possibility of seizing assets, and 0:26:07.080 --> 0:26:09.840 you have to read between the lines, I think a 0:26:09.880 --> 0:26:16.120 lot of those actors in the Argentine episode are are 0:26:16.160 --> 0:26:19.000 they've got their guns ready? If I can just add 0:26:19.000 --> 0:26:22.400 one quick point, I think that the so there's two 0:26:22.400 --> 0:26:24.879 things here, at that point in slightly different directions. One is, 0:26:25.400 --> 0:26:28.280 to the extent we're looking at these non traditional ways 0:26:28.320 --> 0:26:31.840 to distribute assets, then financial creditors are going to be 0:26:31.880 --> 0:26:35.840 competing with other claimants and will maybe not be the 0:26:35.880 --> 0:26:40.359 most sympathetic of the group. So it certainly wasn't to 0:26:40.400 --> 0:26:43.520 help financial creditors that off ghun or around in central 0:26:43.520 --> 0:26:47.119