Argentina, Elliott Renew Battle Over Defaulted Debt

Jul 24 2012 | 11:44am ET

Rebuffed last month by the Supreme Court, Elliott Associates took its decade-long battle with Argentina back to the lower courts yesterday.

The South American company and the New York hedge fund sparred before the Second Circuit Court of Appeals in Manhattan yesterday, the latter to protect a ruling that could be worth more than $1 billion, and the former to have that ruling junked. At issue is the so-called pari passu clause in the $80 billion in debt Argentina defaulted on in 2001, which provides that the country's obligations to pay those bonds "shall at all times rank at least equally with all of its other present and future unsecured and unsubordinated external indebtedness."

The only problem, Elliott argues, is that it hasn't been treated as such: Argentina is paying off bonds it issued later, as part of debt exchanges for the defaulted bonds, but it isn't paying on the defaulted bonds.

"We're entitled to equal treatment," Ted Olson, who represents Elliott's NML Capital, told the court. "We're not getting equal treatment."

Elliott and NML won that argument before a lower court. But that ruling on a "boilerplate clause is a nuclear weapon that gives them the right to veto a sovereign debt restructuring," Argentina's lawyer argued. And as with the Supreme Court case, the U.S. government is siding with Argentina, arguing that U.S. District Judge Thomas Griesa's ruling "could enable a single creditor to thwart the implementation of an internationally-supported restructuring plan, and thereby undermine the decades of effort the United States has expended to encourage a system of cooperative resolution of sovereign debt crises."

Argentina's lawyer, Jonathan Blackman, was more pointed: "Ninety-two percent of the debt holders recognized that the sensible thing to do was to take a haircut," he told the court. And, he added, even if Argentina were to lose the case, it couldn't pay anyway, since the precedent would cover more than the $1.4 billion sought by NML.

"Argentina cannot take 15% to 20% of its reserves to pay holdouts," Blackman said.

Olson said the $20 billion figure Blackman threw out was "new to me;" NML argued in its brief with the appeals court that Argentina, "a G-20 nation with more than $46 billion in unrestricted reserves, has ample resources to pay those 'nonperforming' obligations just as it now pays other obligations."

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