New York state lawmakers have reintroduced legislation that would curb some investors’ ability to buy distressed sovereign debt and sue for full repayment, a move that would reshape the legal landscape for sovereign international bonds.
The proposal would amend the state’s so-called champerty law to allow courts to dismiss claims where sovereign debt was acquired primarily for litigation. It would also reduce pre-judgment interest from the current fixed rate of 9% to a market-based benchmark.
The bill revives a proposal that passed the State Senate last year and is again being advanced with the backing of debt-relief advocates. Both the Senate and Assembly versions are in committee according to their websites, and would move separately to floor votes and, if passed, to the governor’s desk.
“We are working with the market,” said Assemblymember Jessica Gonzales-Rojas at a Tuesday event in Albany in support of the bills. “They don’t like these vulture funds that are disrupting the ways in which sovereign debt is handled and managed and negotiated. These are the bad actors. We are going after the bad actors.”
Hundreds of billions of dollars in sovereign debt could be affected, as New York law governs over 50% of sovereign bonds globally. Changes to state statutes can directly affect how restructurings unfold, how much holdout creditors can recover, and whether investors continue to favor New York as a leading legal venue for sovereign issuance.
Supporters say the measure is designed to close what they see as a loophole created by the 2004 amendment to champerty rules, which allowed claims above $500,000 and, in their view, enabled some investors to buy distressed debt with the aim of suing for full repayment. The bill would reinstate the champerty defense in certain sovereign cases and allow courts to consider patterns of investor behavior across restructurings when assessing litigation intent.
It would also address a key financial incentive in sovereign litigation: New York’s statutory 9% pre‑judgment interest rate, which can significantly boost recoveries in prolonged cases. The proposal would replace it with a floating rate tied to U.S. Treasury yields.
Backers frame the bill as a targeted intervention focused on litigation strategy, moving away from previous attempts to pre-establish a debt restructuring mechanism. The proposed formal restructuring framework drew pushback from investors and financial groups, to the point that some recent sovereign debt contracts allow for a change of governing law.
Major bond investors including Amundi and T. Rowe Price this week proposed adding clauses to sovereign bonds that would allow emerging countries to pause debt payments for up to a year without defaulting in the event of a crisis.
(Reporting by Rodrigo Campos in New York; editing by Karin Strohecker and Nick Zieminski)
Topics
Lawsuits
Legislation
New York
Interested in Lawsuits?
Get automatic alerts for this topic.
