The revised ESM Treaty envisages the introduction of single-limb Collective Action Clauses (CACs). What are they?

Collective action clauses are clauses in the documentation of a bond that allow changes to the terms of bonds that are subject to a vote by their holders. If a qualified majority approves the change, it becomes effective for all those bonds. Unlike for companies, there is no bankruptcy or restructuring procedure for sovereign issuers. Therefore, collective action clauses in sovereign bonds help make sovereign debt restructuring more orderly and predictable. A sovereign state’s bonds are typically divided into a number of different issuances, or “series” (with different maturities, interest amounts, etc.). Single-limb CACs allow the majority vote to take place at the level of all these “series” combined, without the need for a majority at the level of the holders of each individual “series”.

The introduction of the single-limb CACs does not change the current possibility for countries to use so-called sub-aggregation, which is to hold separate votes for different groups of bond issuances, opening the door to offer different conditions to each group.