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Restructuring Italy’s New York Law Bonds

It has been begrudgingly presumed that Italy's bonds governed by New York law will remain untouched during an Italian debt restructuring as a result of an expectation that holdout creditors will successfully challenge any such restructuring attempt. However, it is possible to restructure them using an exit amendment strategy to secure execution and attachment immunity, and to extend the period before creditors can accelerate on bonds that aren’t exchanged. The successful implementation of this strategy previously seemed unattainable because Italy’s pari passu language appeared very attractive to holdout creditors in a restructuring of these bonds. This long-held pari passu presumption is fundamentally flawed because it is based off of a reading of the sales documents rather than the Fiscal Agency Agreements, which contain less creditor-friendly pari passu language than the sales documents. This change in pari passu language increases both the recalcitrant and cooperative-minded bondholders’ motivation to participate in an exchange effectuating the exit consent strategy. As a result, a successful restructuring of these bonds is actually a viable option for the first time.