Sovereign Debt: Update on the Litigation Between Holdouts and the Republic of Argentina

On October 7, 2013, the Supreme Court of the United States denied the petition for a writ of certiorari filed by the Republic of Argentina on June 24, 2013 to review the first ruling issued by the Court of Appeals for the Second Circuit (New York) on October 26, 2012 in re: “NML Capital, Ltd. v. Republic of Argentina”. By means of such ruling, the Court of Appeals confirmed Judge Thomas Griesa’s decision which ordered Argentina to make ratable payments to the plaintiffs if a payment is made under the exchange bonds, according to his interpretation of the pari passu clause included in the bonds which are the subject of this litigation. In addition, the Court of Appeals considered that the order issued by Judge Griesa did not violate the Foreign Sovereign Immunities Act (FSIA), which involves a question of federal law that may allow the review of the Supreme Court of the United States. Please see our article “Reopening of Sovereign Debt Exchange” published in Marval News # 131 dated August 30, 2013 for more details of the background, precedents and rulings in re: “NML Capital, Ltd. v. Republic of Argentina”; and our article “Law Passed for the Reopening of Argentine Sovereign Debt Exchange” published in Marval News # 132 dated September 30, 2013 for more information regarding the law for the reopening of the argentine sovereign debt exchange.

Although the Court of Appeals has confirmed Judge Griesa’s ruling, it remanded the case to Judge Griesa for clarification of how the ratable payment formula is intended to operate and what the effects of the injunctions ordered by Judge Griesa will be with respect to third parties (in particular, the Bank of New York, as a participant in the payment process of the bonds exchanged in 2005 and 2010). In its second ruling dated August 23, 2013, the Court of Appeals confirmed Judge Griesa’s ratable payment formula and ratified that third parties are bound to the injunctions issued within this litigation. Argentina filed a rehearing petition with the Second Circuit which as of October 30, 2013 is pending of resolution. If the Second Circuit denies the rehearing petition, then Argentina will have a 90 (ninety) days term to file another petition for certiorari with the Supreme Court of the United States.

A few days after the August 23, 2013 ruling, Argentina passed a law which provides the reopening of the third exchange offer for the sovereign debt bonds in default that were not tendered in the 2005 and 2010 exchanges. In his decision dated October 3, 2013 Judge Griesa, making reference to the announcements regarding the potential change of place of payment for the exchange bonds, ordered that Argentina shall not amend the payment mechanisms of the exchange bonds without his prior approval. Otherwise, Argentina would violate the court’s injunctions.

The judgments of the New York courts ordering enforcement of the pari passu clause will continue to be stayed until the United States Supreme Court resolves if it takes the case.