CAC clauses are contractual provisions inserted into sovereign bond documentation that allow a qualified majority of bondholders to agree to changes in the bond's key financial terms — such as principal, interest rate, or maturity — and to bind dissenting minority holders to that decision. Their core function is to prevent so-called "holdout" creditors from blocking an otherwise orderly sovereign debt restructuring by refusing to participate and then suing for full repayment.
CACs became prominent after the 1990s emerging-market debt crises, particularly following Argentina's 2001 default, where holdout litigation by funds such as NML Capital frustrated restructuring efforts for over a decade. In response, the international community pushed for broader CAC adoption in foreign-law sovereign bonds. Mexico's 2003 issuance of a New York–law bond containing CACs is widely cited as a turning point, since most emerging-market sovereign debt under English law had already included them.
Within the euro area, CACs were made mandatory for all new euro-area government bonds with maturities over one year issued from 1 January 2013, under the Treaty Establishing the European Stability Mechanism (Article 12(3)). These were upgraded to "single-limb" euro-CACs from 1 January 2022, allowing a single aggregated vote across all affected bond series rather than series-by-series voting, further reducing holdout leverage.
In 2014, the International Capital Market Association (ICMA), with International Monetary Fund support, published model "enhanced" CACs featuring single-limb aggregation and a revised pari passu clause. These have since been incorporated into the majority of new foreign-law sovereign bond issuances.
CACs typically require supermajority thresholds — often 75% of outstanding principal for reserved matters under single-limb voting, or 66⅔%–75% under two-limb structures. They do not eliminate restructuring disputes (see Ukraine's 2015 restructuring and Argentina's 2020 deal) but materially shorten negotiation timelines and reduce litigation risk for issuers and cooperating creditors alike.
Example
When Argentina restructured roughly US$65 billion in foreign-law bonds in 2020, it relied on the CACs embedded in its 2016-issued bonds to bind dissenting creditors to the agreed haircut.