A collective action clause (CAC) allows a qualified majority of bondholders to agree to changes in a bond's payment terms that then bind every holder, including those who voted against.
Why they were introduced
Without CACs, a small group of holdouts could refuse a restructuring and sue for full payment, making it harder for a country and its majority creditors to reach a deal. After a series of debt crises, CACs became standard in English-law sovereign bonds and, from 2003, increasingly in New York-law bonds. Since 2013 euro-area government bonds have included standardised CACs.
Single-limb and aggregated voting
Older CACs worked bond by bond. Since 2014, ICMA's model clauses allow "single-limb" aggregated voting across several bond series at once, making it harder for holdouts to block a restructuring by buying a blocking stake in one series.
General information only, not investment advice.