Document Type

Article

Publication Date

2023

DOI

https://doi.org/10.58112/uplr.171-7.4

Abstract

In this article, we argue that debt textualism played a key role in laying the groundwork for our present malaise by encouraging contracts to become increasingly bloated, complex, and rigid up to the point of buckling completely. The dense contractual landscape wrought by debt textualism, when freshly populated with a calculating coterie of financial mercenaries, has transformed corporate lending markets into an elaborate and costly contest of Hunger Games-worthy contractual “gotcha” where (a) lenders scour loan agreements for unappreciated loopholes to undercut borrowers; (b) borrowers do the same in an attempt to counteract lenders; and (c) permutated coalitions from both groups conspire to kneecap one another. The end result is bitterly ironic: The current landscape severely undermines the very goals of transparency, uniformity, and predictability that textualism was supposed to deliver, as investors and issuers mercenarily scavenge through a wordy forest of express contractual terms, hoping to uncover unforeseen opportunities to blindside their adversaries. As a result, the advertised predictability of debt textualism devolved into an aleatory parlor game over who emerges as the best (or the luckiest) scavenger. The resulting uncertainties are not just confined to direct participants; they also have profound implications for company viability, affecting workers, customers, suppliers, and other corporate stakeholders. They even spill over to systemic risk concerns because deleterious disputes over distressed debt provisions are likely to be strongly correlated with an economic downturn (which some predict is on the horizon, as of this writing). The bottom line, we argue, is that our current reality of debt textualism imposes significant, unreasonable burdens on lenders, borrowers, credit markets, and society at large.

Disciplines

Business Organizations Law | Contracts | Law

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