What is a collective action clause?

A collective action clause (CAC) allows a qualified majority of bondholders to agree to a legally binding debt restructuring. This restructuring is then applied to all holders of the bond – even those who voted against it.

Where have you heard about collective action clauses?

During the 2011-2012 financial crisis, the Greek government applied a retroactive collective action clause with a 75% threshold. This effected 90% of all bonds issued under the jurisdiction of the Greek courts.

What you need to know about collective action clauses.

During the 1980s and 1990s there was a general opposition to the idea of collective action clauses as they were considered to invest too much power to the debtors. Despite this, after Argentina's default on its debts, collective action clauses have become used more frequently as they are viewed as being able to help bondholders to coordinate with greater ease, as well as offering the potential to ward off more drastic solutions that could be applied to bondholders.