Supreme Court Rejects Argentina Appeal, Default Looms In Hedge Fund Dispute

Jun 17 2014 | 3:36pm ET

The U.S. Supreme Court has refused to hear Argentina’s appeal of a series of rulings ordering it to pay hedge fund holdouts from its defaulted debt restructuring, handing those firms a final legal victory and pushing the country to the brink of its second default in 13 years.

The high court yesterday announced it would not accept Argentina’s petition for a writ of certiorari, allowing stand the decisions of the trial court and appeals court finding that the country must pay its non-performing debt if it wishes to continue to pay its restructured debt. Much of the former is held by hedge funds Elliott Management and Aurelius Capital Management, which refused to accept the new debt at a steep discount during exchanges in 2005 and 2010.

The Supreme Court, which, as is customary, did not offer a reason for refusing the case, leaves Argentina with two choices: pay the holdouts, which President Cristina Kirchner has vowed to never do, or default on the restructured debt, which could devastate Argentina’s already fragile economy and which would block its access to international debt markets for years more to come.

In a nationally televised speech, Kirchner, whose term expires next year, seemed to have it both ways. Telling her countrymen and women that the decision was expected, Kirchner rejected it and vowed that she would not “submit the country to such extortion.” But, she added, “it’s our obligation to take responsibility for paying our creditors.”

Kirchner, who has dismissed the hedge funds as “vultures,” insisted that “Argentina has shown more than an evident willingness to negotiate. But one has to distinguish between a negotiation and extortion.”

Elliott has said repeatedly that it is willing to negotiate and has accused Argentina of refusing to sit down. With the Supreme Court’s decision, however, it is unclear what leverage Argentina has left.

“Now it is time for Argentina to honor its commitments to creditors, which would benefit both Argentina’s economy and its international standing,” Elliott’s NML Capital said.

The Supreme Court yesterday also ruled on a case stemming from the dispute it did hear—and once against came down on the side of the hedge funds. In a 7-1 decision, the court ruled that subpoenas issued to Argentina’s banks to help the hedge funds determine the country’s assets were proper and enforceable.” Writing for the court, Justice Antonin Scalia said that U.S. foreign sovereign immunity laws contain no “provision forbidding or limiting discovery.”

The rulings could have an immediate impact: Argentina is set to make about US$500 million in interest payments at the end of the month that, barring a settlement or capitulation, it will default on. The country has argued that it does not have the financial resources to pay the holdouts, who are due about US$1.5 billion of the US$15 billion they are owed.

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