November 23, 2014
UN warns US pro-vulture funds rulings 'erode sovereign immunity'
United Nations trade agency UNCTAD said today that the recent US court ruling on Argentina's debt erodes sovereign immunity and is not in compliance with the country's own US Foreign Sovereign Immunities Act.
It said in a statement the rulings "set legal precedents which could have profound consequences for the international financial system."
The 2nd US Circuit Court of Appeals ruled last week that Argentina cannot continue to pay creditors who agreed to restructure their bonds after its 2001-02 default on $100 billion in debt unless it also pays $1.33 billion to the holdouts demanding full payment.
Along with a recent decision by the US Supreme Court "declining to hear Argentina's appeal against a lower New York court decision that had ordered it to pay suing hedge funds $1.33 billion", the UNCTAD warns both rulings "are a resounding victory for the specific hedge funds that have held out on Argentine debt swaps."
"They also open the door for other 'vulture' funds and holdout investors to come forward to request full payment on Argentine bonds, estimated at around $15 billion. If Argentina pays the holdout bond holders, it must extend full payment to the bond holders that accepted the 2005 or 2010 debt swaps, due to a 'Rights upon Future Offers' clause in its law," the document explains and continues to highlight what the UN agency calls "legal precedents" that could lead to "profound consequences."
"First, by removing financial incentives for creditors to participate in orderly debt workouts, the rulings will make future debt restructuring even more difficult, in particular for outstanding bonds without a Collective Action Clause, the actual amount of which is unknown but is likely to be large. Second, obligating third-party financial institutions to provide information about assets of sovereign borrowers will have a significant impact on the international financial system as it forces financial service institutions to provide confidential information on the sovereign borrower's global financial transactions to facilitate the enforcement of debt contracts for the creditors," the statements adds to thirdly affirm "the ruling will erode sovereign immunity."