Supreme Court Refuses to Hear Argentina Debt Case

29 October 2013

Romano I. Peluso, CCTS, retired Senior Vice President and Corporate Trust Manager at Law Debenture Trust Company of New York, co-authored with Robert I. Landau the sixth edition of Corporate Trust Administration and Management, and holds an MBA from New York University. He consults for other companies and has written articles on financial and business news for practically his entire career and for the American Bankers Association for more than 25 years.  

                             SUPREME COURT REFUSES TO HEAR ARGENTINA DEBT CASE


On Monday, October 7, 2013, the United States Supreme Court refused to hear Argentina’s appeal of a decision rendered by the United States Court of Appeals for the Second Circuit in New York.

The Second Circuit Court, in NML Capital, Ltd, et al., v The Republic of Argentina, ruled on August 23, 2013 that if Argentina keeps up its payments to bondholders who accepted a discounted restructuring offer of new bonds (the “Exchange Bonds”), that it must also make “ratable payment” to a group of holdout bondholders pursuant to the pari passu clause in the Fiscal Agency Agreement under which the bonds were originally issued in 1994 (the 1994 Bonds). This would be 100 percent of the roughly $1.33 billion they are owed in principal and accrued interest.

The Supreme Court, as is customary, offered no reasons for turning down the appeal.

The case, however, is far from over.  Argentina likely will have another opportunity to file a petition for writ of certiorari with the Supreme Court because a related appeal regarding pari passu is pending before the Second Circuit Court. 1

“Argentina will continue exercising its rights to defend itself with all available resources,” said Argentina’s finance minister Adrian Cosentino. The prospect that the legal battle would be extended lowered the immediate risk that Argentina might again default.2

“For markets, this decision is a non-event,” said Alfonso Prat-Gay, the former head of the Argentine central bank. “What’s really important is that the stay stays,” Prat-Gay also said, referring to a separate Second Circuit Court decision that allows Argentina to continue paying bondholders who accepted the Exchange Bonds while keeping at bay the holdout bondholders.3

As previously reported in two articles that were uploaded on the Law Debenture Trust Company of New York’s website on March 8 and September 5, 2013, Argentina defaulted in 2001 on over $81 billion of its 1994 Bonds. The plaintiffs’ bonds are in default and are subject to federal court judgments which are unsatisfied. No payments have been made on the defaulted bonds since 2001.

In 2005 and again in 2010, Argentina made exchange offers to holders of the 1994 Bonds, pursuant to which bondholders who tendered such Bonds received new Exchange Bonds. As a result of the two exchange offers, approximately 91% of the 1994 Bonds were tendered and the Exchange Bonds have been kept current by Argentina.4

At the same time as this litigation is ongoing, Argentina has agreed to settle disputes with five foreign investors seeking to mend ties with creditors as the country faces foreign-currency shortages and limited borrowing options. Argentina has long asked investors that won compensation at the World Bank’s arbitration body to collect through local courts. That controversial legal strategy brought Argentina into conflict with the United States which suspended some of Argentina’s trade benefits and said it would oppose loans to Argentina from the World Bank and other multilateral lenders. Argentina’s change in strategy comes as the World Bank considers lending $3 billion to Argentina.5

Legal experts expect the litigation brought by the holdout bondholders against Argentina to continue well into next year and possibly into 2015.

Endnotes

1.    Shearman & Sterling LLP, Client Publication, “Don’t Cry for Me Argentine Bondholders: Avoiding Supreme (Court) Confusion, September 27, 2013.
2.    Kendall, Brent and Shane Romig, “Top Court Deals Argentina a Setback,” The Wall Street Journal, October 8, 2013.
3.    Mander, Benedict and John Paul Rathbone, “Argentina suffers setback in case against ‘holdout’ creditors,” Financial Times, October 8, 2013.
4.    Peluso, Romano I.,”NML Capital, Ltd, et al., v The Republic of Argentina,” www.lawdebus/news/2013/march, March 8, 2013 and “Second Circuit Appeals Court Ruling in Favor of Plaintiffs in Argentina Case,” www.lawdebus/news/2013/september, September 5, 2013.
5.    Parks, Ken, “Argentina Tries to Mend Investor Ties,” The Wall Street Journal, October 19-20, 2013.



Written by
Romano I. Peluso, CCTS

In 2012, Peluso was awarded by APEX, the "Awards for Publication Excellence," in the category of News Writing for his article "Euro Crisis Implications for the United States: the Domino Effect," which appeared in the January/February 2012 issue of ABA Trust & Investments magazine.
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