• About $ 800 b in developing nations' debt is governed by New York law
• Bill aimed to stop investors from buying bonds just to sue defaulted countries
• Proposal to cap pvt. creditor recoupment during restructuring also failed

Legislation seeking to block holdout bond investors from using New York courts to sue defaulted countries such as Sri Lanka (which was sued for the Hamilton case), was stalled by the state assembly.

According to Bloomberg, about half of all hard-currency debt from developing nations — around $ 800 billion outstanding — is governed by New York law, making the state the most important jurisdiction for those bond issuers. 

New York lawmakers ended the legislative session early Saturday without voting on the so-called champerty doctrine. The bill would have prohibited ‘litigious holdout investors’ from purchasing emerging-market government bonds governed under NY laws for the sole purpose of bringing defaulted nations.

In March, Sri Lanka sought a 5-month extension in the suspension of a case filed by Hamilton Reserve, a holdout investor who is seeking immediate payment on a defaulted bond series in which it claims a 25% stake, which would expire in August. 

Further, a separate proposal, which, among other things, would cap the amount private creditors could recoup during a restructuring, also failed. That proposal had been broadly rejected by investors, who claimed it would raise borrowing costs for foreign governments.

The failures of both bills marks a setback for a group of politicians, nonprofits and activists in their efforts to bring greater legal oversight to defaulted sovereign debt restructurings. That process has been plagued by delays, leaving nations including Zambia, Sri Lanka and Ghana stuck in default for years, cut off from international financing markets.

In addition to targeting holdouts, the champerty bill would have changed the interest rate that accumulates on defaulted sovereign bonds, reducing the 9% mandatory rate to a new rate that matches the going yield on one-year Treasury bills, currently 5.2%.