Bondholder organisations aggregate the interests of many creditors, and thereby facilitate collective action, even in the absence of legal relationships between individual lenders. Typically, individual sovereign creditors are not bound together by any legal relationship.
If such private–state renegotiation of debt instruments succeeds, there is no need to elevate the dispute to the inter-state level, avoiding the potential for political embarrassment and diplomatic turmoil.
The British Corporation of Foreign Bondholders (CFB) was the most active organisation of private creditors, operating from 1869 to 1988. It was semi-official in the sense that it had Whitehall's sanction and full support. But it was not a government agency, and could press for payments without being overly concerned about the repercussions for foreign policy. The CFB initiated arbitration against Ecuador, Santo Domingo, Venezuela, Guatemala and Honduras. When arbitrating a sovereign debt dispute against Venezuela early in the twentieth century, it obtained less than 20 per cent of its original claim.
In many cases, creditors assembled in this organisation used their leverage resulting from their ability to block continued access to the London money market. Defaulting governments unwilling to negotiate on the Corporation's terms could face a severe tightening of credit and even a complete loss of market access for long periods of time. Similarly, on the New York Stock Exchange, informal rules meant that approval of sovereign bonds from defaulted governments was unlikely. Similar loan boycotts were used elsewhere.