March 8, 2014
US Supreme Court to hear Argentina case
Justices agree to review court order requiring banks to turn over information about country’s assets
The US Supreme Court yesterday agreed to consider a dispute over subpoenas in a case stemming from long-running litigation over Argentina’s obligations to bond investors in the wake of its default on 100 billion pesos in sovereign debt in 2002.
The court agreed to hear Argentina’s appeal after a New York based appeals court ruled that a hedge fund could subpoena banks for information about the South American country’s non-US assets.
The hedge fund, NML Capital, a holder of Argentine bonds, wants repayment in full in a fight that was prompted by Argentina’s 2002 default. The repayment issue is the subject of high-profile litigation that could be headed to the high court in a separate case.
“Argentina is in open defiance of dozens of judgments of US courts to pay American investors what it owes,” said Theodore B. Olson, a lawyer for NML. “It’s time for Argentina to stop trying to evade its obligations and to follow the law.” In the matter the court acted upon yesterday, the question is the narrower issue of whether NML could enforce subpoenas against Bank of America and Banco de la Nación Argentina.
In August 2012, the 2nd US Circuit Court of Appeals in New York rejected Argentina’s argument that some subpoenas should be quashed because it would infringe on its sovereign immunity.
The Obama administration backed Argentina in the case.
The US Supreme Court finally decided to take the case yesterday over subpoenas involving Argentina and hedge funds that are searching for information on Argentine assets abroad.
NML, a unit of billionaire hedge fund manager Paul Singer’s Elliott Management Corp, is one of several bondholders that rejected offers accepted by other investors to swap the defaulted debt for new paper at a steep discount. The other major player is Aurelius Capital Management.
In the higher-profile case, the same appeals court declined in November to reconsider an order requiring Argentina to pay 1.33 billion dollars, ruling in favor of the bondholders. Argentina is now expected to seek a Supreme Court review in that case.
Meanwhile, a decision in the subpoenas case is expected by the end of June.
The pari passu dispute
On November 18, 2013, a US appeals court declined to reconsider an order requiring Argentina to pay US$1.33 billion, ruling in favour of bondholders who refused to participate in two debt restructurings spinning out of the country’s 2002 default.
The 2nd US Circuit Court of Appeals in New York denied a petition by Argentina for rehearing by all of the judges sitting on the court.
One month earlier, the same tribunal ruled that Argentina had violated a so-called pari passu clause in its bond documents that establishes equal footing to all creditors.
The court’s decision set the stage for Argentina to go to the US Supreme Court in a case that has created concerns about a potential new debt crisis following Argentina’s US$100-billion default more than a decade ago.
The decision on Argentina’s request for a so-called en banc hearing was then a victory for bondholders led by the hedge funds NML Capital Ltd and Aurelius Capital Management.
Argentina has refused to pay the holdout bondholders, who Argentine President Cristina Fernández has called “vulture funds.” Its continued refusal to pay up could result in US courts enforcing injunctions blocking payment overseas to bondholders who participated in prior restructurings in 2005 and 2010, possibly causing a new default.
The case is one of a multitude of lawsuits filed after Argentina’s historic 2002 sovereign debt default.
Creditors holding about 93 percent of the country’s bonds agreed to participate in the two previous debt swaps in 2005 and 2010 which gave them 25 to 29 cents on the dollar.
Other bondholders including NML and Aurelius went to court seeking payment in full. The litigation was filed in New York under the bond documents’ terms.
NML has said it approached Argentina “countless” times to come to a solution but has always been rebuffed.
Herald with Reuters