THE LONDON CLUB GLOSSARY OF SELECTED TERMS (continued)

Debt Management Team
A team set up by a Sovereign at the time when rescheduling of its unofficial credits become necessary. The debt management team may comprise of members only from within the Sovereign or from both within and outside. Apart from other objectives, one major objective of the team is the preparation of an Information Memorandum to be presented to creditor banks and financial institutions.

Debt Rescheduling
To revise or postpone dates on which principal or interest payments are supposed to be made. This process also includes agreement on the grace period, rescheduling fees charged by the banks and the lending margin (i.e. how high above the prime rate the interest rate on that debt is to be).

Default Interest
Provisions relating to payment of interest in consequence of default on the payment of principal and interest.

Documentation Sub-Group
A group nominated by the Bank Advisory Committee (BAC) and the Sovereign following agreement on the Heads of Terms to agree to the terms and text of the definitive documents to be put to the creditors. The documentation sub-group may comprise of representatives from the BAC, the Sovereign and legal counsel.

Draw Down
The payment or advance (by the creditor) of a portion of a loan to the borrower. In most cases, a loan is not advanced in one amount at one time to the borrower, but in a number of tranches or instalments over a period of time.

Eligible Debt
This is external debt owed by the Sovereign, its political sub-divisions, agencies and parastatals or debts guaranteed by any of these bodies.

Equal Treatment
A fundamental premise of restructuring sovereign commercial bank debt stating that all similarly situated commercial bank creditors must be treated equally, both in terms of the rescheduling of their existing exposure and their proportional participation in any new credit facilities if such can be obtained from the banks. Legally, the equal treatment objective is ensured through a number of contractual provisions in restructuring and new money agreements including sharing clauses, mandatory pre-payment provisions, negative pledge and pari passu covenants and appropriate events of default.

Events of Default
Conditions contained in agreements and imposed by creditors (such as misrepresentation, breach of warranty, non-payment) and any of whose failure to comply with results in breach of contract and rescission of the agreement or damages depending on the gravity of the breach.

Excluded Debt
This is debt which ordinarily falls within the scope of restructurable debt but which is exempted owing to the nature of the debtor or the creditor. Debts in this category include: publicly issued bonds, floating rate certificates of deposit and notes; privately placed securities; loans made, guaranteed or insured by foreign government agencies (including export credit agencies) - these are usually rescheduled under the Paris Club; debts owed to the IMF, World Bank, BIS, regional development banks or other multilateral organizations; lease obligations in respect of tangible personal property; loans from official sources; short-term trade credits; spot and forward exchange and precious metal contracts; debts payable to entities other than banks or financial institutions.

Exploratory Meeting
In the rescheduling process this is the first official contact between the debtor country and the Bank Advisory Committee (BAC). In this meeting, the case of the debtor country is formally presented before the BAC. Apart from a verbal presentation, the Information Memorandum is also submitted for the BAC to study and disseminate among creditor banks. It is at this meeting that broad agreements are reached on maturities to be rescheduled and other administrative issues pertaining to the rescheduling exercise.

>> next | back to table of contents