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Today the United States declined to intervene in two cases with international diplomatic ramifications, concerning Argentine defaulted debt.
In the first case the court declined to intervene, without any explanations as to why, in a case where the State of Argentina claimed that lower courts had somehow misread Argentina’s international bond covenants and had also violated its immunity as a sovereign state.
The rebuff is a victory for distressed debt investors, led by a Paul Singer-controlled hedge fund, NMI Capital who acquired distressed Argentine debt obligations both shortly before, and after, it defaulted on US$95 billion of its international sovereign debt in 2001.
In two subsequent restructurings, in 2005 and 2010 about 93% of the debt-holders agreed to a major haircut, but Singer and a few others refused to exchange their defaulted bonds for about 30 cents on the dollar and have been claiming full payment of both principal and accrued interest since.
Last year, in a novel form of legal argument, Singer had argued that the equal treatment “pari passu” clauses of the original loan agreements meant he and his fellow holdouts were still entitled to be paid whenever payments were made on the remaining US$24 billion of debt that had been restructured.
The exact language of the agreements, which were issued under new York Law, as are many other such international bond issues, was:
The Securities will constitute . . . direct, unconditional, unsecured and unsubordinated obligations of the Republic (of Argentina) and shall at all times rank pari passu without any preference among themselves.
The payment obligations of the Republic under the Securities shall at all times rank at least equally with all its other present and future unsecured and unsubordinated External Indebtedness . . . .
Argentina claimed that the pari pass did not apply to loans that had already entered into default and been restructured, but the New York Judge in the case, Judge Thomas Griesa, of the New York District Court did not agree with them and ruled for Singer in a US$1.33 billion judgment last August.
When Argentina said this set an impossible precedent, Judge Griesa again disagreed with them, stating that it was quite possible to contemplate new forms of language for such agreements that would remove this result and that, indeed, this is already commonly done in other agreements, typically using a “Collective Action Clause” as the legal language for such questions is commonly termed.
However, that did not, in his view, absolve the State of Argentina in this particular case for not having had the foresight to do just that beforehand.
Judge Griesa’s rejection, which was later upheld by the US Second Circuit Court of Appeals, left Argentina potentially facing a court order to pay the holdouts in full before it makes payments on a separate $24 billion in restructured debt.
Well, now the Supreme Court of the United States has tacitly agreed with Judge Griesa, too, by choosing not to intervene in the case, even though the United State Government itself had filed arguments supporting Argentina, on diplomatic grounds.