The New York State Legislature recently proposed a bill, entitled the Sovereign Debt Stability Act, [1] intended to facilitate sovereign debt restructuring.

Key Takeaways:

Accept an unpalatable offer, or reject it and risk getting much less (or even nothing)? This is the choice stakeholders in chapter 11 bankruptcies increasingly face as a result of the proliferation of “deathtrap” provisions in plans of reorganization. For example, a class of bondholders may be forced to decide between accepting 60 cents on the dollar if they vote to accept a plan, or 40 cents if they reject. A class of equityholders may have to decide between accepting equity warrants, or rejecting and getting nothing.