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US Supreme Court possible action on Argentina/hedge funds case deferred a week

Tuesday, October 1st 2013 - 18:32 UTC
Full article 9 comments
The court is scheduled to issue its next list of orders on Oct. 7, the day its new term formally opens The court is scheduled to issue its next list of orders on Oct. 7, the day its new term formally opens

The US Supreme Court on Tuesday took no action on a landmark case pitting Argentina against creditors which could have deep repercussions for financially troubled governments and their creditors. The court had been expected to announce whether it would review the case, but it was not included in a list of cases accepted or denied for review that was released on Tuesday.

There was no indication when the nation's highest court might decide whether to accept the case, and given the case's complexity, it could be many weeks. The court could want to hear first the official legal view on the case of the Obama administration.

Argentina has already lost one appeal against last year's judgment by a New York federal court ordering the country to pay in full two hedge funds holding bonds which the country defaulted on 13 years ago.

Argentina argues that the two, NML Capital and Aurelius Capital, lost their right to collect when they declined to take part in the 2005 and 2010 restructurings of nearly 100 billion dollars of defaulted debt.

Argentina argued that paying the full face-value for their bonds would be unfair to the restructured bondholders. It also said being forced to pay the two in full could expand its payment obligations to others and force it back in default on all its debt.

But the lower US court said that under the law and Argentina's bond contracts, the country was obliged to pay the two funds in whole, a sum including interest that amounts to around 1.5 billion dollars.

The case is being closely watched because it could have significant impact on other sovereign debt restructurings.

In most such deals, a large majority of holders of a defaulted government's bonds accept write-downs in the bonds' value in order to be assured they will recover some of the debt.

In turn, “holdouts” who refuse to agree to the deal -- or those who buy holdouts' bonds after the deal is cut -- can find themselves facing a total loss of the bonds' value.

If the US Supreme Court decides not to accept Argentina's appeal, debt specialists say it could confirm the claims that holdouts have in such deals.

That could make restructuring the debt of a defaulting government harder to achieve, though the lower court argued that the Argentina case was unique.

Opinion is divided on whether the legal showdown threatens to undermine future restructurings worldwide.

The Obama administration backed Argentina in the lower courts but has not indicated where it stands now that the case is before the high court.

The International Monetary Fund has voiced worry that a ruling against Argentina would make it more difficult for other countries to restructure their debt in times of economic crisis.

Holdouts call that an exaggeration given the near universal use of collective action clauses in new bond deals saying that a minority of investors would not be able to holdout if a super-majority of creditors agree to restructure.

The case now before the Supreme Court is Argentina v. NML Capital, 12-1494. It was the high court's first meeting in three months to decide what cases to accept.

If finally the Supreme Court accepts the case, it then could be several months before a hearing and a final ruling.

There is another possible outcome. Another appeal by Argentina remains in process. If it is rejected, it will be the US tribunal to rule on this case as well, leading to the unification of both petitions. It could be then expected for the Supreme Court to analyze Argentina’s case.

Finally the Supreme Court will be officially announcing of October 7 which cases it will be hearing.

Top Comments

Disclaimer & comment rules
  • Think

    Uncertainty keeps one young.....

    Oct 01st, 2013 - 06:48 pm 0
  • Pugol-H

    Things are somewhat less uncertain with this development, not good news for Argentina at all.

    Oct 01st, 2013 - 06:58 pm 0
  • nota

    Can I ask a question think, which country do you currently have residence?

    Oct 01st, 2013 - 07:48 pm 0
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