US Debt Markets Meet the Emerging Markets: Legal Challenges Faced by Cross Border Lenders

Patrick Del Duca, Alan Feld, Cristian Vallejo
August 16, 2005

[Abstract]
As emerging market businesses increasingly seek credit through United States and other international financial markets, hedge funds and other market players more actively trade claims to their debt. Such creditors accordingly confront in greater measure the disconnect between the integrity, liquidity and sophistication of US financial markets on the one hand, and on the other the often weak institutions and out-of-date legal norms of the emerging market countries where the revenue streams and collateral to support the financing principally reside. This essay highlights conceptual differences in the relevant legal systems that participants in cross border debt transactions may encounter. It identifies specific, practical constraints of emerging market host country and US legal systems relevant to cross border debt transactions, together with strategies to address them. Those who understand how emerging market host country norms on the creation, perfection and enforcement of rights in collateral constrain the financial flows through the channels between emerging and global financial markets will navigate them better than others.

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