Argentina's Debt Restructuring Argument Could Be Very Significant For The Global Economy

cristina fernandez

Photo: Wikimedia Commons

Yesterday, Argentina filed for a re-hearing of its arguments against hedge fund manager Paul Singer and other investors in its sovereign debt that neglected to restructure their debt in 2005 and 2010 (exchange bondholders).Officially, their filing is called a “petition for panel rehearing and rehearing en banc.”

This spat has been going on for years (Singer and co. bought the debt in 2001) and it’s just now coming to a head since New York Judge Thomas Griese ruled that Argentina would have to starting paying exchange bondholders in December.

That could mean a whopping $3 billion payment next month to them, investors who restructured aside.

Singer himself his owed $1.3 billion.

Now here’s the thing. Argentina is making two arguments for why their case should be heard (before a panel of judges) again. We checked out the brief courtesy of law firm Shearman & Sterling LLP (h/t @pawelmorski).

  • Their first argument is that, based on the Foreign Sovereign Immunities Act, they question whether or not a Court can force them to pay bondholders that restructured and those that did not equally (the Court has already said that they can).
  • The second point Argentina makes is more interesting. They contend that the Court is ruling contrary to market understanding in awarding the full amount of their investment to exchange bondholders.

In short (on the second point) if the Court rewards those who do not restructure, why restructure at all? This could set a precedent for debt restructurings for the entire global economy.

The Court has ruled against that point saying that Argentina itself has not acted uniformly on debt restructurings through its history. 

Basically the Judges are saying — this is an argument that has never been settled, Argentina, not even for you.

Sherman & Sterling writes that the likelihood of Argentina getting winning their appeal for a re-hearing is low, especially because they’re in New York 2nd Court of Appeals.

According to the official statistics, in the 11-year period from 2000 through 2010, the twelve regional circuits heard a total of more than 325,000 cases that were terminated on the merits after oral hearings or submissions on briefs. A total of 667 (as reported) to 670 cases (using our Second Circuit data) were heard en banc during that same 11-year period—a little over 2/10 of 1% of the total. The average for the Second Circuit was about one-eighth that of the system-wide average: eight cases heard en banc out of a total of 27,856 appeals that were terminated on the merits, or less than 3/100 of 1% of the cases.

So yeah, not looking good. But Argentina does make an interesting point. What’s the point of restructuring if bondholders can fight a decade-long legal battle and ultimately get their money back and then some.


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