July 23, 2014

The Fate of Argentina's Debt Restructuring is Getting Closer

In what the Financial Times has called “the sovereign debt restructuring case of the century,” Argentina has timely submitted its proposal as requested by the U.S. Court of Appeals for the Second Circuit, with which it is willing to make payments on approximately $1.3 billion of unpaid debt obligations that stem from the country’s $95 billion debt default of December 2001.

The case is getting closer to completing its more than 10-year marathon in the courts of New York, in a long battle between the Republic of Argentina and NML Capital Ltd., a fund affiliate of the hedge fund firm Elliott Associates. As said in our previous blog entry (click here), NML, based in the Cayman Islands, is seeking to repeat its landmark victory when it won a case against Peru in the 1990s, recovering approximately 400% what it paid for Peru’s debt.

Argentina’s proposal almost mimics the terms and conditions of the 2010 debt exchange, and requests the court to support this “cram down,” claiming that, if rejected, Argentina will be forced to reopen the entire debt restructuring, which has already been accepted by creditors holding 93% of the debt (Argentina agreed to exchange defaulted bonds with restructured debt obligations initially paying bondholders approximately thirty cents on the dollar).

Under the proposal, the par option is intended for smaller investors (less than $50,000). It would give bondholders new bonds due in 2038 with a nominal face amount equal to the amount of their defaulted debt, plus unpaid interest up to the end of 2001. The bonds would pay interest (from 2.5% to 5.25% annually) over the life of the bonds. Past due interests would be paid in cash.

On the other hand, the discount option would give holdouts bonds due in 2033 for 34% of the defaulted amount, with an 8.28% annual rate. Creditors would be compensated for past due interest on the restructured bonds with new bonds due in 2017 that pays 8.75% annually (Bono Global 2017).

Both par and discount options are supplemented with securities that are tied to Argentina’s GDP growth.

It is expected that by the end of April the court will reach its decision. Stakes are high for both Argentina and future sovereign debt restructurings. That is the main reason why the Federal Bank Reserve of New York, the American Bankers Association, and the U.S. Attorney General's office favored Argentina’s position. The latter argued that "by unduly restricting the immunity afforded to foreign state property, the decision not only contradicts this Court's precedent, but could adversely affect U.S. foreign relations and threaten U.S. government assets…The panel in this case adopted a novel interpretation of a standard pari passu clause found in many sovereign-debt instruments, in a manner that runs counter to longstanding U.S. efforts to promote orderly restructuring of sovereign debt.”

Marcos Vergara del Carril contributed to this article. 

Copyright © 2014, Sheppard Mullin Richter & Hampton LLP.

About the Author

Sheppard Mullin's Latin American Practice provides specialized legal representation to Hispanic/Latino-owned companies, domestic and international companies targeting the U.S. Hispanic/Latino market, and companies with predominately Spanish speaking work forces. With the dynamic growth of Hispanic/Latino-owned companies and of the Hispanic/Latino population throughout the U.S. comes both the challenge of increasingly complex legal issues and the opportunity to grow your business.  At Sheppard Mullin we recognize both the challenge and the opportunity and offer the services of a...


Boost: AJAX core statistics

Legal Disclaimer

You are responsible for reading, understanding and agreeing to the National Law Review's (NLR’s) and the National Law Forum LLC's  Terms of Use and Privacy Policy before using the National Law Review website. The National Law Review is a free to use, no-log in database of legal and business articles. The content and links on are intended for general information purposes only. Any legal analysis, legislative updates or other content and links should not be construed as legal or professional advice or a substitute for such advice. No attorney-client or confidential relationship is formed by the transmission of information between you and the National Law Review website or any of the law firms, attorneys or other professionals or organizations who include content on the National Law Review website. If you require legal or professional advice, kindly contact an attorney or other suitable professional advisor.  

Some states have laws and ethical rules regarding solicitation and advertisement practices by attorneys and/or other professionals. The National Law Review is not a law firm nor is  intended to be  a referral service for attorneys and/or other professionals. The NLR does not wish, nor does it intend, to solicit the business of anyone or to refer anyone to an attorney or other professional.  NLR does not answer legal questions nor will we refer you to an attorney or other professional if you request such information from us. 

Under certain state laws the following statements may be required on this website and we have included them in order to be in full compliance with these rules. The choice of a lawyer or other professional is an important decision and should not be based solely upon advertisements. Attorney Advertising Notice: Prior results do not guarantee a similar outcome. Statement in compliance with Texas Rules of Professional Conduct. Unless otherwise noted, attorneys are not certified by the Texas Board of Legal Specialization, nor can NLR attest to the accuracy of any notation of Legal Specialization or other Professional Credentials.

The National Law Review - National Law Forum LLC 4700 Gilbert Ave. Suite 47 #230 Western Springs, IL 60558  Telephone  (708) 357-3317 If you would ike to contact us via email please click here.