LatinFinance - January/February 2013 - 26

Argentina sovereign debt

A question of justice
By Ben Miller

C

lick. Click. Click. At some point
on December 15, $3.3 billion in
coupon payments to holders of
Argentina’s 2017 restructured bonds
made it through the clearing mechanisms
at the Bank of New York and, via other
intermediaries, into bondholders’
accounts.
That’s what they ordinarily do. But
just weeks earlier, it was anything but
certain that these payments would be
made.
A decision in October by a New York
district court had thrown into doubt
the future of payments to bondholders
in 2005 and 2010 exchange offers.
Argentina was ordered to pay $1.3
billion immediately to holdout creditors
remaining from its $81 billion 2001
default – even if that meant seizing
payments in US clearing mechanisms.
After the initial order and subsequent
clarification at the request of an appeals
court, Argentina was left with just three
weeks to find a solution – a prospect that
once again raised the specter default, and
of a dangerous precedent for any country
on the brink of bankruptcy – forcing
them to default if they cannot propose
restructurings. Such an outcome could
also compel other emerging markets
issuers to shun US law bonds.
In the event, a US Second Circuit
appeals court in November granted
Argentina a reprieve, calling for more
time to deliberate and pushing a final
decision to the end of February.
The prospect that one of the world’s
most notorious borrowers might default
again has since diminished somewhat,
but the litigants in NML Capital Ltd
vs Republic of Argentina, as well as
many interested parties including the
restructured creditors and the US
government, are anxiously awaiting the

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AmericaMovil/Argentina.indd 26

The specter of default once again hangs over Argentina. While
the implications could prove far-reaching for sovereign debt
restructurings, hopes are high for an orderly resolution 

Crisis and consequence: a court decides
conclusion of the process, starting with a
hearing set for February 27.
The delay could work to Argentina’s
favor. “If you have more time you can
mitigate some of those risks and plan for
a more orderly outcome,” says Siobhan
Morden, head of Latin America strategy at
Jefferies. “It’s not just a delay, it’s a delay
with some optimism. The more time they
have, the more time they have to plan.”
Unrelenting and vociferous in its vows
never to pay holdout creditors – using
language like “vultures” and “judicial
imperialism” – Argentina’s first priority

would simply be to preserve the status
quo. The hope is that the court does not
enforce the order to the extent that US
federal judge Thomas Griesa intended. If
not, it could petition the case to go before
the US Supreme Court.
The outcome rests on the enforcement
of Griesa’s interpretation of the pari
passu clause in Argentina’s bonds held
by holdouts such as Elliott Capital
Management, owner of NML.
The clause, usually used in bond
language to sort out who gets paid first
in the event of a bankruptcy, is being

January/February 2013

1/9/13 11:20 AM
LatinFinance - January/February 2013

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