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Argentine bonds' case reaches US Supreme Court; support from Obama administration

Monday, April 21st 2014 - 07:06 UTC
Full article 43 comments
US Deputy Solicitor General Edwin Kneedler is expected to argue that lower court rulings “undermine sovereign immunity” US Deputy Solicitor General Edwin Kneedler is expected to argue that lower court rulings “undermine sovereign immunity”

The US government will stand before the Supreme Court on Monday in support of Argentina's position in its ongoing legal fight with bond investors over a ruling which forces banks in New York, with which Argentina does business, to disclose information about the country's non US assets, as investors seek repayment.

 US Deputy Solicitor General Edwin Kneedler will be acting for the Obama administration in the case “Argentina vs NML Capital”, which has Jonathan Blackman as the leading solicitor from Cleary & Gottlieb in defense of Argentina.

The case being argued concerns NML's efforts to enforce U.S. court judgments it already has won against Argentina. The only way it can enforce the judgments is by tracking down Argentina's assets in the United States and elsewhere.

NML says it has won judgments worth about 1.7 billion dollars but it has had little success in seizing assets as the legal process is convoluted and is resolved on a case-by-case basis. Among the assets NML has tried to seize so far are an Argentine frigate that was docked in Ghana and a contract for launch slots at the SpaceX private satellite launch site in California.

In the matter before the high court, the question is whether NML could enforce subpoenas against Bank of America Corp and Banco de la Nacion Argentina seeking information about Argentina's non-U.S. assets.

In August 2012, the 2nd U.S. Circuit Court of Appeals in New York said NML could subpoena the banks. But in court papers, Argentina's lawyers say that its sovereign immunity, as outlined in a federal law called the Foreign Sovereign Immunities Act, extends to the type of information NML is seeking via the subpoenas.

The U.S. government backs Argentina saying lower court rulings undermined sovereign immunity. It is because of the difficulty of seizing assets a piecemeal way that NML and the other holdout investors tried another strategy, which led to the pari passu case pending before the high court.

NML's argument is that when Argentina services its debt on the restructured bonds, it must also pay a proportion of that money to the holdout bond investors. In August 2013, the appeals court in New York endorsed that argument. The ruling was suspended pending Supreme Court review.

Theodore Olson, a lawyer for NML, said both cases were about “Argentina's default on its obligations and its refusal for decades to honor those legally binding obligations which it voluntarily incurred in order to raise capital in American financial markets.”

A ruling on Monday's case is expected by late June. Observers on both sides will be watching the argument and the ruling for clues as to how the justices will act on Argentina's second case, referred to as the “pari passu” case. Pari passu clauses, routinely included in the contracts that govern the sale of debt, require equal treatment of investors.

The pari passu case could have implications for other countries facing defaults and the bond market as a whole, according to Brett House, a senior fellow at the Centre for International Governance Innovation, a think tank based in Waterloo, Ontario. A ruling against Argentina could have a damaging effect on New York's role as an issuer of bonds, House said.

“They don't want to issue debt if it can come back and bite them,” he said.

Argentina has also received the support from Brazil and Mexico who fear the negative consequences for debt restructuring. In the recent IMF-World Bank annual assembly, the G24 also warned about any resolution that promotes the 'predatory behavior' of the bond holdouts and its consequences for sovereign debt. France adopted a similar position, and so did G-77, China plus the IMF and renowned economists such as Joseph Stiglitz and Nouriel Roubini.

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  • Think

    TWIMC

    Article says...:
    “Argentina has also received the support from Brazil and Mexico who fear the negative consequences for debt restructuring. In the recent IMF-World Bank annual assembly, the G24 also warned about any resolution that promotes the 'predatory behavior' of the bond holdouts and its consequences for sovereign debt. France adopted a similar position, and so did G-77, China plus the IMF and renowned economists such as Joseph Stiglitz and Nouriel Roubini.”

    I say...:
    VULTURES..., we are coming after you...
    As that magnificent Yank (AND citizen of Rapallo;-) once said...:
    “”“I was out of focus, taking a symptom for the cause.... The cause is not USURY... The cause is AVARICE...”“”

    Apr 21st, 2014 - 07:49 am 0
  • golfcronie

    @1
    I THINK if you want to borrow money you have to pay it back. SIMPLE really.
    If Argentina wins this case then it opens the door to other third world countries to do the same. Do you know of anyone I can borrow money off and not pay it back? I would be seriously interested.

    Apr 21st, 2014 - 09:26 am 0
  • yankeeboy

    The IMF/US want a sovereign bankruptcy court so filthy deadbeat scofflaws won't emulate Argentina in the future.

    Argentina gave preferential trade treatment to Brazil and Mexico in trade for their amicus brief. So they will be ignored.

    We should be able to tell by the questions that are asked where this will come out.

    Apr 21st, 2014 - 10:50 am 0
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