For the second time, a U.S. appeals court has ordered Argentina to pay hedge fund holdouts from its defaulted debt restructuring in full—or default on the new bonds it issued to creditors who accepted that restructuring.
In a sweeping victory for the holdouts, led by Elliott Management, the U.S Second Circuit Court of Appeals in Manhattan rejected Argentina’s proposal to restructure the holdouts’ debt along lines similar to the deal they have already twice rejected.
The court had ruled last year that Argentina must provide equal treatment to both sets of bonds.
The ruling leaves Argentina with recourse only to the U.S. Supreme Court. The Second Circuit did stay its ruling to allow Argentina to appeal to the Supreme Court, which would not decide whether to hear the case until after it returns from recess on Oct. 7.
The appeals panel was extremely hard on Argentina, blasting the country’s oft-stated “intention to defy any rulings of this court… with which they disagree.” Argentina has said U.S. court rulings ordering it to pay the $1.33 billion it owes to the holdouts are an infringement on its sovereignty, even though it issued the bonds in New York under U.S. law.
“In order to collect billions of dollars, at a low interest rate in the U.S. financial markets, Argentina promised to submit herself under the United States jurisdiction, sticking to New York’s laws, and abandoning its sovereign immunity.”
The Second Circuit also rejected Argentina’s argument—at one point backed by the U.S. government—that ordering it to pay would roil the international debt markets.
“Cases like this one are unlikely to occur in the future because Argentina has been a uniquely recalcitrant debtor and because newer bonds almost universally include collective-action clauses which permit a supermajority of bondholders to impose a restructuring on potential holders.” Roughly 93% of creditors from the 2001 default have accepted the restructuring.
Argentina’s economy minister, Hernán Lorenzino, said that the ruling was an “attempt to take the country back to 2001” and vowed that it “will carry on paying as we have done up until now.”