Bloomberg News

Argentina Loses U.S. Appeal of Ruling on Defaulted Bonds

October 26, 2012

Argentina can’t make payments on restructured sovereign debt while refusing to pay holders of its defaulted bonds, a U.S. appeals court ruled in a victory for creditors including Elliott Management Corp.’s NML Capital Fund.

Argentine bonds sank the most in four months on the ruling. The U.S. Court of Appeals in New York today upheld lower-court decisions, which may help creditors who rejected the country’s restructuring offers collect $1.4 billion in defaulted debt.

“We hold that an equal treatment provision in the bonds bars Argentina from discriminating against plaintiffs’ bonds in favor of bonds issued in connection with the restructurings and that Argentina violated that provision by ranking its payment obligations on the defaulted debt below its obligations to the holders of its restructured debt,” U.S. Circuit Judge Barrington Parker said in the opinion.

The appeals court, which upheld orders issued by U.S. District Judge Thomas Griesa in Manhattan, rejected Argentina’s claims that the move would undermine its debt agreements, trigger a new financial crisis in the republic and make it impossible for countries including Greece, Spain and Portugal, to restructure their debt in the future. Argentina defaulted on more than $80 billion in foreign bonds in 2001.

‘Blanket Assertion’

“Nothing in the record supports Argentina’s blanket assertion that the injunctions will ‘plunge the Republic into a new financial and economic crisis,’” Parker wrote. “The district court found that the republic had sufficient funds, including over $40 billion in foreign currency reserves, to pay plaintiffs the judgments they are due.”

The appeals court sent the case back to Griesa to clarify how a payment formula set by the judge is intended to work and to determine how the orders apply to intermediary banks and other third parties. After Griesa rules on those issues, the case will return to the appeals court for a review of his decisions, Parker said.

Jonathan Blackman, a lawyer representing Argentina, didn’t immediately return a call seeking comment on the ruling. Peter Truell, a spokesman for Elliott, declined to comment.

In its decision, the appeals court said the equal treatment, or pari passu, clause in the bond agreement means that Argentina can’t subordinate the interests of the defaulted bondholders to those of investors who chose to participate in debt restructurings in 2005 and 2010.

Foreign Debt

In the two offerings, Argentina restructured 91 percent of its 2001 defaulted foreign debt, Parker said. NML and the other investors suing Argentina were within their rights to reject the republic’s 25-cents-on-the-dollar offers for their bonds, according to the ruling.

The government’s dollar-denominated notes due 2015 dropped 5.11 cents, the biggest slide since June 11, to 84.96 cents on the dollar, at 2:09 p.m. New York time. Yields jumped 2.1 percentage points to 13.62 percent, the highest level since July 31, according to data compiled by Bloomberg.

Equal Treatment

In addition to ruling on the equal treatment provision, the appeals court rejected Argentina’s arguments that Griesa’s injunctions violate the Foreign Sovereign Immunities Act, which limits the ability of plaintiffs to sue foreign countries in U.S. courts.

The appeals court said its ruling is unlikely to hamper other countries that may try to restructure their debt in the future. Almost all the bonds issued since January 2005 that are covered by New York law include so-called “collective action clauses,” provisions that allow a super-majority of bondholders to agree on a debt restructuring that is binding on all holders, according to the court.

The case is NML Capital Ltd. v. Republic of Argentina, 12- 00105, U.S. Court of Appeals for the Second Circuit (Manhattan).

To contact the reporter on this story: Bob Van Voris in New York at

To contact the editor responsible for this story: Michael Hytha at

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