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What is meant by collective action clause?



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A collective action clause allows a supermajority of bondholders to agree a debt restructuring that is legally binding on all holders of the bond, including those who vote against the restructuring.

Bondholders may fear that this gives debtors too much power, but this clause become common after Argentina's December 2001 default on its debts when its bonds lost 70% of their value. Now CACs
are considered as warding off more drastic action, but enabling easier coordination of bondholders.

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