Friday, 21 October 2016
Last updated 11 hours ago
Jun 12 2014 | 9:34am ET
The fate of Argentina’s legal battle with hedge fund holdouts from its 2001 default could come to a head—or even a conclusion—today.
The U.S. Supreme Court is set to consider Argentina’s request that the justices hear its appeal of lower-court rulings ordering it to pay creditors who rejected its restructuring, led by Elliott Associates. The court could choose to take the case, wait to decide or reject the petition, with an announcement as soon as Monday.
If it takes the latter course, it is likely to force Argentina to default on its restructured debt, potentially keeping the country out of the international debt market for years more to come. Argentina’s lawyers argued in a recent memo to the country’s economics minister that a default and restructuring of the bonds outside the bounds of U.S. courts would be the country’s best option should the Supreme Court refuse to hear the case, and President Cristina Kirchner has vowed never to pay the holdouts, which she calls “vulture funds.”
That default could come as soon as the end of the month, when Argentina is due to pay $523 million in interest on its restructured bonds. The lower courts have ruled that the country cannot pay those bondholders, who accepted a roughly 67% haircut, without also making payments on the defaulted debt, citing the pari passu clause in the original debt agreement, requiring that bondholders be treated equally.
Argentina could also choose to negotiate with Elliott and the other holdouts, such as Aurelius Capital Management, in an effort to avoid another default. Both Elliott and Aurelius have indicated an openness to talks.
If, however, the court chooses to hear the case, or makes no decision at all, it could be a year or longer—before there is any resolution. Should the justices accept the petition, it would not likely hear the case until the fall, with no ruling until next year. Should they punt, perhaps by asking the White House to weigh in, they might not decide whether to hear the case until the fall, pushing everything back further.
Argentina argues that the rulings in favor of the hedge funds violate its sovereign immunity and “threaten the well-being of Argentina and its citizens, as well as the countless holders of performing Argentine debt, many of whom are U.S. institutional investors and individuals.”
The Supreme Court is already considering Argentina’s appeal of subpoenas issued to its banks, having heard arguments in April. The court appeared skeptical of Argentina’s argument that those banks should have blanket immunity from subpoenas.