Sovereign Debt Update

Sovereign Debt Update

In a historic decision with the potential to end 15 years of litigation between the Republic of Argentina and holdout bondholders from the financially strapped South American nation’s 2005 and 2010 sovereign debt restructurings, Judge Thomas Griesa of the U.S. District Court for the Southern District of New York entered an order on March 2, 2016, conditionally dissolving 2012 and 2015 injunctions that preclude Argentina from making payments on its restructured debt unless it also pays amounts owed to holdout bondholders. The injunctions effectively locked the country out of international credit markets. Judge Griesa’s order paves the way for Argentina to regain access to those markets and enables the country to raise capital so that it can begin paying settling holdout bondholders. The fly in the ointment is that certain holdouts, including hedge funds NML Capital and Aurelius Capital Partners, have appealed the order to the U.S. Court of Appeals for the Second Circuit, which is expected to hear argument on the appeal sometime in April 2016.

Judge Griesa’s ruling came on the heels of a series of landmark settlements with holdout bondholders, including: (i) a $1.35 billion settlement between Argentina and 50,000 Italian holdout bondholders announced on February 2, 2016; (ii) a $1.1 billion settlement between Argentina and holdout bondholders EM Ltd. and Montreux Partners LP, announced on February 5, 2016; and (iii) a $4.6 billion settlement between Argentina and NML Capital, Aurelius Capital Partners, and other major holdout bondholders, announced on February 29, 2016.

These settlements were reached shortly after newly elected Argentine President Mauricio Macri pledged to return Argentina from credit markets exile and to make a fresh start following Argentina’s second sovereign debt default in 13 years, in July 2014 (Argentina first defaulted in 2001, in the midst of one of the worst economic crises in its history). The President’s more conciliatory approach stands in stark contrast to the strategy employed by former Argentine President Cristina Fernández de Kirchner, who systematically refused to negotiate with the holdouts for eight years, characterizing them as “economic terrorists.” Additional settlements in the aggregate amount of approximately $350 million were announced on March 9 and March 18.

Even though they reached a deal with Argentina, NML Capital and Aurelius Capital Partners appealed Judge Griesa’s order, contending that the ruling “rests on the erroneous premise that ‘changed circumstances’ necessary to warrant lifting the Injunctions exist solely on the basis of Argentina’s hope that it will pay some subset of creditors who agreed to terms under coercive conditions.” According to the appellants, while they “sincerely hope” Argentina will pay under their settlement agreement, payment is “far from certain,” and the Second Circuit should correct the “misimpression that Argentina may obtain even conditional relief from the Injunctions simply by claiming a willingness to settle.”

Even if Judge Griesa’s ruling is ultimately upheld on appeal, his vacatur of the injunctions is conditioned upon: (i) Argentina’s repeal of several laws, including the “Lock Law,” which prohibits payments to bondholders other than holders of exchange bonds; and (ii) Argentina’s payment of any funds promised to holdout bondholders that settled on or before February 29, 2016.

On March 11, 2016, the Second Circuit granted an unopposed motion to stay the effectiveness of Judge Griesa’s order until it could adjudicate appeals from the ruling. In an order issued earlier, the Second Circuit set a briefing schedule that would run through March 25, stating that the date of any arguments on the appeals would be determined “at a later time.”

On March 16, 2016, Argentina’s Chamber of Deputies approved legislation introduced by the Macri administration to issue new debt and repeal the sovereign payment law and the Lock Law, which would permit Argentina to consummate settlements it has reached with holdout bondholders. Argentina’s Senate is also expected to approve the bill.

Stay tuned for further developments.

Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our "Contact Us" form, which can be found on our website at The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.