The U.S. Supreme Court left intact a
ruling that may force Argentina to make payments on defaulted
government bonds, rejecting that country’s appeal in a clash
that has roiled its financial markets.
The justices, without comment, today let stand a 2012 U.S.
appeals court decision that bars Argentina from making payments
on $24 billion in restructured debt unless it also pays owners
of the earlier repudiated bonds. The bondholders include a fund
controlled by billionaire Paul Singer. The Supreme Court still
could get involved at a later stage.
The legal fight, which puts U.S. courts in the unusual
position of shaping a foreign country’s finances, has raised the
possibility of a new Argentine default and prompted Standard
Poor’s, Fitch and Moody’s to lower the country’s bond ratings.
Argentina says it faces the prospect of having to pay more than
$15 billion to cover defaulted debt and penalties.
The lower court ruling “represents an unprecedented
intrusion into the activities of a foreign state within its own
territory,” Argentina argued in its appeal.
The focus of the fight now turns to a federal appeals court
in New York, where Argentina is seeking reconsideration of a
separate decision in the case. Should that bid fail, the country
could file a new Supreme Court appeal.
The appeals court has said its decision won’t take effect
until the Supreme Court makes a final decision on whether to
hear Argentina’s appeals.
Finance Secretary
Argentina will use all legal means to appeal the case,
Finance Secretary Adrian Cosentino said today in an e-mailed
statement.
Justice Sonia Sotomayor didn’t participate in today’s high
court action, giving no reason. She took part in Argentina debt
litigation when she was an appeals court judge.
Singer’s NML Capital Ltd., a unit of Elliott Management
Corp., says Argentina is exaggerating the impact of the appeals
court ruling, which directly affects claims for $1.5 billion.
The fund says Argentina can afford to pay both sets of
bondholders.
The dispute stems from Argentina’s 2001 default on a record
$95 billion in debt. The country offered to substitute bonds
worth 25 to 29 cents on the dollar in 2005 and made a similar
proposal in 2010. Owners tendered about 92 percent of the
outstanding debt.
Bond Agreement
NML bought some of the defaulted bonds from the holdouts
and sued to collect the full amount. NML said a clause in the
bond agreement bars Argentina from treating the restructured
securities more favorably than the defaulted bonds.
A federal trial judge agreed with that argument, as did the
New York-based 2nd U.S. Circuit Court of Appeals.
In its Supreme Court appeal, Argentina contended that the
lower courts violated foreign sovereign immunity by dictating
what the country can do with property located outside the U.S.
NML and a second group of investors led by Aurelius Capital
Master Ltd. urged the high court to reject the appeal.
The 2nd Circuit issued a second ruling in August, saying
Argentina must pay the holdout creditors in full if it makes
payments on its restructured debt. Argentina is seeking a new
hearing before a larger panel of judges. A rejection of that
request would clear the way for the country to file another
Supreme Court appeal.
‘Speculative, Hyperbolic’
In the August opinion, the appeals court said Argentina’s
predictions of a financial cataclysm were “speculative,
hyperbolic and almost entirely of the republic’s own making.”
The country is exploring options for trying to sidestep the
appeals court ruling. Argentine President Cristina Fernandez de Kirchner said in August that the country will offer a new
restructuring to defaulted bondholders and let investors who own
the restructured notes swap them into debt subject to local law.
A federal judge on Oct. 4 barred Argentina from going
forward with that plan, calling it “an apparent attempt to
evade” his previous orders.
Argentina previously said it never would pay the funds,
which the country’s leaders have called “vultures.” Its
legislature passed a law in 2005 barring payment on the
defaulted bonds.
The case is Argentina v. NML Capital, 12-1494.
To contact the reporter on this story:
Greg Stohr in Washington at
gstohr@bloomberg.net
To contact the editor responsible for this story:
Steven Komarow at
skomarow1@bloomberg.net