Missed Dues on China LGFVs’ Private Debt Cascade Into Bonds
- Over 4,000 LGFV bonds carry cross-protection clause: report
- Pace of cross-protection clause being triggered accelerates
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An uptick of missed payments on private debt by Chinese local government financing vehicles is spilling over into their bonds, potentially leading to a downward spiral.
As the LGFVs fail to pay on debt such as loans or commercial papers, bond holders can invoke a so-called cross-protection clause, allowing them to demand extra collateral or ask for faster or higher payments.