MercoPress. South Atlantic News Agency

German court rules against Argentina on bonds' interest payments

Presiding Judge Hans-Ulrich Joeres said there were no collective action clauses allowing a restructuring by majority in the Deutsche Mark denominated bonds

Argentina lost a ruling at Germany’s top civil court over interest payments on bonds it sold to investors in the European country that don’t have terms that allow for restructuring by a majority vote of creditors, according to a report from Bloomberg at Karlsruhe.

 The Federal Court of Justice rejected Argentina’s argument that international law allows countries that default to withhold payments on all of its bonds if it reaches an agreement with most creditors, Presiding Judge Hans-Ulrich Joeres said at a hearing in Karlsruhe, on Tuesday.

Argentina’s default on a record 95 billion in 2001 set off more than a decade of litigation over what its creditors should receive, with today’s case being the second in a European court in as many weeks. Euro-denominated Argentina bonds soared to an eight-year high after a London judge ruled last week they were covered by English law.

“Neither the financial crisis in 2008 and 2009, nor the Euro-rescue measures for Greece and Cyprus established a general rule that creditors of a state in an economic and financial distress must participate in a restructuring,” Presiding Judge Hans-Ulrich Joeres said when delivering the ruling.

Today’s cases concern two German consumers who bought bonds in 1996 and 1997. The Deutsche Mark-denominated securities were issued under German law and didn’t have so-called collective action clauses allowing a restructuring by majority vote. Argentina stopped interest payments on both securities in 2002.

Both plaintiffs had already won several rulings over various periods of interest payments in lower courts.

The investors can now seek interest payments on the bonds. If Argentina doesn’t pay voluntarily, they could try to seize government property. Lawyers for the plaintiffs said it may be difficult to find assets outside Argentina.

“We now have 30 years to enforce the ruling,” said Volkert Vorwerk, an attorney for the plaintiffs. “We hope Argentina will come to its senses at some point and start to pay”, concludes the Bloomberg report.