Ep 165 - Total Return Swaps

About this episode

The episode discusses the implications and mechanics of Total Return Swaps in government financing.

Total Return Swaps There have been reports in the financial press about the use of Total Return Swaps to provide credit to governments (e.g., Angola), often in situations where the government can't otherwise borrow on capital markets. As best we understand them (i.e., badly) these are derivatives backed by sovereign bonds and sometimes cash as collateral. The collateral reduces borrowing costs and the debt stays off books, since the obligation to pay the bonds is contingent (since the bonds are only collateral). We increasingly hear scuttlebutt suggesting these deals are commonplace, and some of our investor friends complain that TRSs effectively subordinate existing creditors. We don't understand TRSs well, and we have questions. Isn't this just garden variety debt dilution? Does it violate the negative pledge clause? Producer: Leanna Doty

People in this episode

Hosts: Mitu Gulati, Mark Weidemaier

Topics covered

• Total Return Swaps
• credit to governments
• derivatives
• sovereign bonds
• debt dilution
• negative pledge clause

Keywords

• Total Return Swaps
• credit
• derivatives
• sovereign bonds
• debt dilution
• negative pledge clause

Mentioned in this episode

Organizations: Angola

Products: Total Return Swaps

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