Will the Flip Clause Enter the Canon?
Contract innovation is rare in sovereign debt markets, so we are interested whenever someone adds a new clause to the existing set of canonical forms. A number of innovations have appeared in 2025, one of which is the "flip clause." The clause allows investors to opt out of the governing law and enforcement jurisdiction initially chosen in the debt instrument. We have some questions about the clause and doubt that in its current form it will gain widespread acceptance. Right now, it seems more symbol than substance — a way to metaphorically flip off the New York legislature.
Producer: Leanna Doty
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Will the Flip Clause Enter the Canon?
Contract innovation is rare in sovereign debt markets, so we are interested whenever someone adds a new clause to the existing set of canonical forms. A number of innovations have appeared in 2025, one of which is the "flip clause." The clause allows investors to opt out of the governing law and enforcement jurisdiction initially chosen in the debt instrument. We have some questions about the clause and doubt that in its current form it will gain widespread acceptance. Right now, it seems more symbol than substance — a way to metaphorically flip off the New York legislature.
Producer: Leanna Doty
Total Return Swaps
There have been reports in the financial press about the use of Total Return Swaps to provide credit to governments (e.g., Angola), often in situations where the government can't otherwise borrow on capital markets. As best we understand them (i.e., badly) these are derivatives backed by sovereign bonds and sometimes cash as collateral. The collateral reduces borrowing costs and the debt stays off books, since the obligation to pay the bonds is contingent (since the bonds are only collateral). We increasingly hear scuttlebutt suggesting these deals are commonplace, and some of our investor friends complain that TRSs effectively subordinate existing creditors. We don't understand TRSs well, and we have questions. Isn't this just garden variety debt dilution? Does it violate the negative pledge clause?
Producer: Leanna Doty
Clauses & Controversies
Will the Flip Clause Enter the Canon?
Contract innovation is rare in sovereign debt markets, so we are interested whenever someone adds a new clause to the existing set of canonical forms. A number of innovations have appeared in 2025, one of which is the "flip clause." The clause allows investors to opt out of the governing law and enforcement jurisdiction initially chosen in the debt instrument. We have some questions about the clause and doubt that in its current form it will gain widespread acceptance. Right now, it seems more symbol than substance — a way to metaphorically flip off the New York legislature.
Producer: Leanna Doty
