Clifford Chance finance partners are celebrating the completion the world's last outstanding sovereign debt rescheduling with the signing of an agreement by Russia to repay the former Soviet Union's $33bn debt over the next 25 years.
The firm's two London finance partners, Cliff Godfrey and Andrew Yianni, have spent the past four months drafting the details of the massively complex agreement, the fruit of five years' negotiations, ready for signing this month.
Clifford Chance was first instructed on the Russian debt rescheduling in 1992, after the Soviet Union began to collapse and default on its debt repayment. A “London Club” steering committee of the 500 creditor banks was set up to re-negotiate payments and appointed Clifford Chance to advise. US firm Cleary Gottlieb Steen & Hamilton advised the Russian government.
The first breakthrough came when Russia, at the end of 1992, agreed to take responsibility for the whole of the Soviet Union's debt rather than dividing it up among all the former member states.
Negotiations were lengthened by political instability in Russia with President Yeltsin going through more than six finance ministers during the period.
Yianni said another major hurdle was Russia's reluctance to waive its sovereign immunity to being sued as a debt defaulter. The banks would have no security unless someone could be sued in the event of default.
In the end, a compromise was reached by designating the former Foreign Trade Board of the Soviet Union as the body which owed the money, rather than the Russian government.
In 1995, outline heads of terms were reached when Russian prime minister Victor Chernomyrdin came to the UK. The following year, the Clifford Chance team devised some unique financing proposals.
The principal $24bn debt will be paid in cash over 25 years and $10bn in interest will be paid, partly in cash and partly by bond issues.
The innovative part of the deal, said Yianni, was a compromise reached between the banks and the Russian government under which any interest not paid by Russia is added to the bond issues, so the amount of bonds issued over the first five years will increase.
Since many of the bonds will be issued in New York, the novel structure sent Clifford Chance's New York lawyers scurrying to their textbooks, to determine how such an issue should be treated under US securities law.