Bondholders who withhold their consent and retain their right to seek the full repayment of original bonds, may disrupt the restructuring process, creating a situation known as the holdout problem.
The contractual terms for obligating all bondholders to accept a restructuring approved by some supermajority is typically spelled out in what are known as Collective Action Clauses, or CACs.
If the restructuring does not take place, they gain nothing, but holdouts may initiate damaging litigation that results in extremely high costs in direct and indirect economic injury to the debtor.
Sarkozy was aiming at declining bond yields with his statement, but showed implicitly that countries want to avoid sovereign debt restructurings for reasons of their own national pride.
Creditors left behind in a restructuring could lead to following problems: The European Stability Mechanism (ESM) has been installed in order to help out countries of the Eurozone in financial distress.
[5] An August 2013 appeals court ruling in Argentina v. NML Capital, 12-1494, determined that holdouts should be repaid the full face value,[6] but without the losses taken by those who had accepted the 2005 and 2010 swaps at a 70%-75% discount.
The Argentine situation has increased awareness of the utility of Collective Action Clauses in preventing or reducing holdout complications in debt restructuring.