Sovereign Debt Update November/December 2015

Sovereign Debt Update November/December 2015


The long-running dispute continues between the Republic of Argentina, which defaulted on its sovereign debt for the second time in July 2014, and holdout bondholders from two previous debt restructurings.

On October 5, 2015, the U.S. Court of Appeals for the Second Circuit upheld U.S. district court judge Thomas Griesa’s October 27, 2014, order denying requests by two groups of judgment creditors holding defaulted bonds issued by Argentina for an order forcing Bank of New York Mellon, in satisfaction of the Republic’s judgment debt, to turn over $539 million that Argentina had deposited in 2014 to pay creditors who participated in its past debt restructurings. In its summary rulings, the Second Circuit agreed with Judge Griesa’s ruling that, even assuming the turnover provisions in New York law applied to the funds, such a turnover would be barred by the Foreign Sovereign Immunities Act.

On October 16, 2015, Argentina’s holdout bondholders, alleging that the Republic waived its privilege by failing to comply with Judge Griesa’s August 13, 2015, order directing Argentina to identify privileged documents within 10 days, asked the judge to issue an order compelling Argentina and its counsel to produce all documents and information responsive to discovery requests seeking information concerning Argentina’s U.S. assets. The bondholders claim that the privilege log submitted by Argentina does not comply with the court’s order, which expressly provided that the Republic’s failure to produce a timely privilege log “ ‘will be deemed to be a waiver of the claim of privilege.’ ”


On August 14, 2015, eurozone finance ministers approved €86 billion ($96 billion) in new bailout loans for Greece. This third round of bailout financing in five years capped six months of turbulent negotiations between Greece’s left-wing government, led by Prime Minister Alexis Tsipras, and Greece’s creditors, including the European Central Bank (the “ECB”) and the International Monetary Fund. Without a deal, Greece and the 19-nation eurozone confronted the prospect of “Grexit”—Greece’s forced departure from the currency union.

The aid deal still faces major obstacles. On August 20, 2015, embattled Prime Minister Tsipras, in a gamble aimed at bolstering his power and ability to implement the bailout deal, resigned to clear the way for early elections slated for September 20. He was forced to call snap elections due to the large-scale defection of Syriza party lawmakers during the parliamentary vote on August 14.

On September 20, 2015, Tsipras was returned to power by Greek voters, many of whom stated that Tsipras had fought hard to get them a better deal from the nation’s creditors and deserved a second chance at governing. The new government now faces the challenges of implementing unpopular austerity measures mandated by the bailout deal, including carrying out steep budget cuts, lobbying for action by other eurozone countries to ease Greece’s debt load, and dealing with the added financial strain of Europe’s refugee crisis.

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