Sovereign Debt Update - October 7, 2013

On October 7, 2013, the U.S. Supreme Court denied Argentina’s petition for the court to review a October 26, 2012 ruling by the U.S. Court of Appeals for the Second Circuit (see NML Capital, Ltd. v. Republic of Argentina, 699 F.3d 246 (2d Cir. 2012)) upholding a lower court’s orders barring Argentina from paying holders of debt restructured in 2005 and 2010 without also paying in full holdout bondholders holding $1.5 billion in defaulted bonds. The Supreme Court’s refusal to review the ruling means that litigation in lower courts continues, including an action pending before the Second Circuit in which the court on August 23, 2013 upheld a lower court’s order directing Argentina to pay holdout bondholders $1.33 billion, but delayed implementation of its ruling until the U.S. Supreme Court decided whether to hear Argentina’s appeal. In its order denying Argentina’s petition for a writ of certiorari, the Supreme Court stated merely that the petition was denied and that Justice Sonia Sotomayor, who sat on the Second Circuit before being appointed to the Supreme Court in 2009, had not taken part in the discussion.

On October 3, 2013, the U.S. District Court for the Southern District of New York barred Argentina from proceeding with a plan by President Cristina Fernandez de Kirchner to exchange restructured bonds, which are governed by New York law, for debt instruments governed by Argentine law. U.S. District Judge Thomas Griesa ruled that the plan, announced by Kirchner in a national address on August 26, 2013, is “an apparent attempt to evade” his February 23, 2012 orders barring Argentina from paying holders of restructured debt without also paying holdout bondholders in full. Judge Griesa, who referred specifically to the Kirchner plan, reiterated his March 5, 2012 order barring Argentina from “altering or amending the processes or specific transfer mechanisms by which it makes payments on the exchange bonds, without prior approval of the court.”