Sovereign finance law

Just like organisations and individuals, governments sometimes need to borrow money. They are likely to need to call on the services of lawyers who can structure arrangements for borrowing funds and provide advice on managing the debt. These lawyers must be conscious of the political environment in which their clients operate, as well as the legal rules and market practices that apply.

Graduate careers in sovereign finance law

National (or ‘sovereign’) debtors are unlike their corporate borrower counterparts in several ways. For example, when a sovereign borrows money from foreign creditors, it does so knowing that if the country's debt burden becomes unsustainable in the future, there is no institutional framework (such as Chapter 11 under the US Bankruptcy Code) it can use to seek a rearrangement of the debt. This means that lawyers making arrangements with creditors need to be persuasive, creative and resilient.

Borrowing money from abroad is occasionally a politically sensitive issue in the debtor country. If a country gets into financial trouble at a later stage, the government's decision about whether and when to repay that money will almost certainly also have a large political element, both domestic and international. These decisions can have profound effects on the debtor country's political and economic stability, as well as on its reputation in the international capital markets.

Sovereign clients often seek the assistance of foreign lawyers to help with their external debt management programmes. These lawyers provide an insight into customary practices and documentation in the international capital markets – something that a sovereign's domestic legal advisers, however knowledgeable in local rules, may lack. Solicitors' assignments often involve helping the sovereign client (and its public sector enterprises) with new borrowing or foreign investments. If circumstances arise that prevent the country from servicing its debts in the normal course, foreign legal advisers may also be asked to assist the client in restructuring the creditors' claims so the country's debt profile is manageable both in the short and long term.

Drafting and negotiating loan agreements and bond indentures is only part of the work. Helping the client (typically a ministry of finance or a central bank) to prepare ministerial speeches, press releases, responses to domestic legislative enquiries and correspondence with foreign creditors and multinational financial institutions is also an important aspect of a sovereign financial practice.

A law firm's relationship with a sovereign client can often span years or even decades. Foreign legal advisers sometimes even become the main institutional memory of a country’s external debt management activities. 

What skills does a sovereign finance lawyer need to do the job?

• The ability to take a long term view.
• The confidence to deal with political figures.
• Excellent communication skills.
• Political awareness and sensitivity.

What is it like doing a trainee solicitor job in sovereign finance law? 

Trainees may not be involved in new borrowing transactions (loans or bond issuances, for example) as these projects are likely to need the specialist skills of senior lawyers and associates. However, a large privatisation or a major sovereign debt restructuring may call for the law firm to field a much larger team of professionals of all levels of seniority.

Types of law practised

• Banking.
• Conflicts of law.
• International.
• Litigation.

About the author

DAVID SABEL is a member of the sovereign practice group in CLEARY GOTTLIEB STEEN & HAMILTON LLP, based in the London office.