June 11, 2024 - Over the past few weeks, the LSTA joined with the Creditor Rights Coalition (“CRC”) to successfully push back against a “champerty” bill passed by the New York State Senate.  Champerty is the doctrine that prohibits the sale of credit instruments for the purpose of litigating those claims.  Although the proposed bill applied only to sovereign debt and most LSTA’s members are not engaged in the trading of sovereign debt, the LSTA was very concerned that the champerty law could next be extended to corporate distressed debt.  Such a law would have devastating effects of the distressed credit trading markets and, by extension, the regular way credit trading markets which rely on distressed markets for liquidity in times of stress.

Because of the threat posed by the bill, the CRC and LSTA sent several letters urging the Assembly not to take up the bill and we are pleased that the 2024 legislative session ended without any action.  As Reorg noted late last week:

“The New York State Assembly this morning adjourned its 2024 legislative session without holding a vote on the sovereign debt champerty bill, S.5623/A.5290. The proposal, which earlier this week passed the New York State Senate, would have effectively prohibited sovereign debt lawsuits brought by “litigious holdout investors” for the approximately half of all sovereign debt contracts that are governed by New York law.  Industry organizations such as the Creditor Rights Coalition and Loan Syndication & Trading Association vocally opposed the measure even after lawmakers amended the bill to incorporate some feedback from industry stakeholders and federal officials.”

What’s next?  Because the New York State legislature has ended its 2024 session, any champerty bill would have to be re-introduced in next year’s session and begin the process from scratch.  If the bill is reintroduced we expect to once again engage to prevent its passage.