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Argentina



Cartoon vulture image


Argentina isn't having any luck at all in the U.S. courts of late.


On June 17th, the Supreme Court upheld a discovery order, that will make life easier for holdout bondholder NML as it searches the world for attachable Argentine assets. The money quote is as follows: “The prospect that NML’s general request for information about Argentina’s worldwide assets may turn up information about property that Argentina regards as immune does not mean that NML cannot pursue discovery of it.”


Meanwhile, the court denied review of two other cases that went to the issue of interpreting the language of the issuing documents, the pari passu clause.


Here is coverage from the fine folks at SCOTUSblog. 


The gist of it is that the New York district court, which has been working very hard to make it impossible for Argentina to distribute money with any assistance from US based financial institutions unless the holdout creditors share in those disbursements, has gotten its way. There appears no recourse left. The only way Argentina can continue its policy of freezing out the holdouts will be by doing so entirely outside the reach of the U.S.


The image above, by the way, is a clip art "vulture," simply because hedge funds that use the modus operandi of NML have often received the unflattering moniker, "vulture funds." Unflattering, though perhaps more for emotive than cognitive reasons: the science of ecology teaches us that scavengers are useful creatures.


At any rate, Argentina may be able to continue its present policy of freezing out the vultures by staying outside the U.S. in regard to its financial operations, but this would prove tricky, and if it is going to be accomplished without any delay in scheduled payments to the favored creditors (the “exchange bondholders”) it will require fast footwork indeed. And it will still expose Argentina’s assets in third countries to NML’s continuing search for whatever may be subject to seizure given the court orders already in its favor.  


 On the discovery issue, the one that received a full-dress opinion, it was Scalia  who wrote for the majority – an impressive 7 to 1 majority – that included Kagan and Breyer, neither of whom is a reliable Scalia ally in the sort of case that produces ideological splits. [Elena Kagan is an Obama appointment, Stephen Breyer was a Clinton appointment.]


 Sotomayor didn’t participate in the case, no one is exactly sure why. Ginsburg cast the dissenting vote and wrote a brief opinion saying, “Without proof of any kind that other nations broadly expose a foreign sovereign’s  property to arrest, attachment or execution, a more modest assumption is in order.”


The fascinating question, to me, isn’t the impact of the outcome of this litigation on Argentina, but its impact more broadly.


The interpretation of the Second Circuit on that pari passu clause is now in effect the law of the land. No, a SCOTUS refusal to hear a case doesn’t set precedent, but the Second Circuit precedent stands, and the Second Circuit is the one that counts for financial institutions, certainly for the sort of financial institutions that routinely deal with sovereign nations.


If, as I’m given to understand, pari passu language is broadly used, that fact is about to change. We can be sure that further bonds from EM nations in particular will have different wording.


In the meantime, for all those bonds that have been issued pursuant to such language, has an orderly restructuring become virtually impossible?

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