Chicago Journal of International Law

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In response to sovereign debt defaults in recent years, investors have pursued a number of novel legal strategies in national courts and international tribunals to maximize their payouts from the defaulted bonds. Many developing countries that raise capital through the issuance of sovereign debt have also entered into Bilateral Investment Treaties (BITs) with the U.S. and other developed countries. BITs encourage foreign investment in developing countries by providing certain protections for investors, which in turn lower the risk of the investment. In the event of a dispute with a foreign investor, BITs typically provide that the parties may file suit in a designated forum, often the International Centre for the Settlement of Investment Disputes (ICSID). Recently, investors have refused to participate in countries' restructuring efforts and instead used BIT claims to try to extract higher payouts from defaulted bonds through ICSID proceedings. Greater ICSID involvement in sovereign debt restructuring is problematic; it is likely to increase the cost of raising capital through sovereign debt issuances and the costs of restructuring for insolvent countries.