THE LONDON CLUB GLOSSARY OF SELECTED TERMS (continued)

Most Favoured Debt Clause
See pari passu clause.

Multi-Year Rescheduling Agreement (MYRA)
A rescheduling which consolidates debts coming due two or more years into the future through a series of shorter consolidations that come into effect automatically if certain conditions are met. Initially, such reschedulings were limited to principal only, as these were meant to signal a country's return to normal access to commercial credits. However, in May 1989, MYRAs were granted to Mexico and the Philippines which rescheduled principal and interest. The objective of these reschedulings was to provide greater certainty to the financial flows that these countries could expect to receive over the next few years.

Negative Pledge Clause
This is a clause stating that a borrower will not create or allow to create any security without the prior written consent of some percentage of the creditors other than the security existing on the date of the restructuring agreement and any other security which will be exempted from application of the negative pledge clause. The reason for the introduction of this clause in a restructuring agreement is that banks and financial institutions want to make sure that the obligor does not burden its assets with security given to new lenders thereby diminishing the assets available to the restructuring creditors in the event of a default. The key to the negative pledge clause are the exceptions which can be carved out from its application.

New Money
Additional commitments made by commercial banks to the borrowing country to supplement debt relief. The Paris Club has made it a principle not to provide new money to troubled debtor countries but has, instead, rescheduled interest as well as principal, unlike the commercial banks which reschedule principal only. In a few cases, Paris Club creditors have provided new financing, but this has been done at special pledging sessions outside the framework of the debt renegotiations.

New York Club
To reflect the many restructurings wherein the bulk of the debt is owed to United States commercial banks and/or the New York law governs the documentation, one could also have a New York Club for commercial debt restructuring.

Obligor
A debtor; a person, firm, or corporation that is bound to perform an obligation, such as payment of a note or bond. A corporation that has issued bonds is an obligor corporation. For an eventual new debt restructuring agreement, an obligor may include (a) the original public sector obligors, (b) the original public sector obligors with a sovereign or central bank guarantee, (c) the central bank, (d) the central bank with a sovereign guarantee, (e) the sovereign with a central bank guarantee, or (f) the sovereign alone.

Pari Passu Clause
This is a clause which states that the claims of the banks and financial institutions which enter into a restructuring agreement will rank at least pari passu in all respects with the claims with respect to external indebtedness of all other unsecured creditors. The pari passu covenant restricts the borrower from legally subordinating the unsecured debt being rescheduled to other external obligations of an unsecured nature. Thus, this clause prevents the debtor from discriminating against any set of creditors or prevents any set of creditors from receiving preferential treatment.

Refinancing
The process of advancing further monies, by creditors whose loans are to be rescheduled, which are used to repay the earlier debt. This debt is then rescheduled on new terms. Refinancing can also mean extending the maturity date of existing loans. Refinancing is one form of restructuring - other forms include consolidation or layering.

Representations and Warranties
These are statements made by the borrower on the basis of which the rescheduling agreements were structured. Conceptually, these statements give assurances as to the legal validity of the obligations of the debtor under the agreement. Technically, a representation is a statement made prior to the execution of the agreement which induces the creditor to enter into the agreement whereas a warranty is a term of the contract itself. Loan agreements generally provide that the correctness of the representations and warranties on an undated basis is a pre-condition to the drawing of each loan under a new money facility. It is also an express event of default if any of the representations and warranties should be untrue; if such be the case, it enables the creditors to cancel the commitments and to accelerate the outstanding indebtedness.

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