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Argentina Returns, Again Seeking Cert. in Bonds Case

By William Peacock, Esq. on February 21, 2014 | Last updated on March 21, 2019

We had a feeling they'd be back.

Last October, we noted that Argentina's first appeal to the Supreme Court was kicked, which wasn't particularly surprising since the appeal was filed before the Second Circuit handed down its decision (ordering Argentina to pay more than $1 billion in debt). While that petition was pending, the Second Circuit handed down its decision, and an appeal of that decision was expected.

Here it is: will the Supreme Court save Argentina from venture "vulture" capitalists, and possibly save that nation from economic collapse?

World's Worst Debt Collectors

If you thought 3:00 a.m. calls over unpaid credit cards were bad, try this:

In the early 2000s, Argentina defaulted on nearly $100 billion in debt. In two debt swap deals, they restructured the debt in order to pay pennies on the dollar.

Problem solved, right? Except a handful of venture capitalists bought some of the outstanding debt and refused to take pennies. Face value: $1.4 billion. They're holding out for all of it.

Argentina is refusing to pay on principle and on pragmatism (they're still broke), but the Second Circuit, relying on the doctrine of pari passu [PDF], ("equal footing") ordered Argentina to pay all of its creditors at once -- the ones who agreed to take pennies and the venture vultures.


According to The Wall Street Journal, both sides of the debt dispute have hired legal heavyweights. Argentina has hired former U.S. Solicitor General Paul Clement, while the hedge funds folks seeking full payment have hired his successor, Theodore Olson.


Felix Salmon, in a blog for Reuters, lists three possible resolutions, besides default and a denied cert. petition, for the dispute: sovereign immunity, pari passu, and the bondholders' ransom.

Foreign Sovereign Immunities Act (FSIA)

The FSIA would seem to prevent this suit -- sovereigns can't be bound by U.S. courts and our courts can't force them to tap their reserve funds, except, as Salmon notes, the lower courts have already addressed the issue, and Argentina may have explicitly waived immunity in the bond documentation.

Pari Passu

This doctrine, as applied in this case, comes from interpretations of New York state law, and Salmon notes that no state court has ever interpreted it -- only federal courts have (and Salmon isn't convinced by their reading of the law). Furthermore, no New York state court has ever applied the doctrine to sovereign debt.

Bondholders' Ransom

The final solution, per Salmon, is "an inter-creditor transaction." Basically, those who took deals are willing to take less. They're scheduled to receive around $7.5 billion over the next five years, but might be willing to take less, say $6 billion, and toss the rest to the vultures.

Salmon has way more information on the key players and the obstacles to such a reasonable-sounding deal, along with the finer points of the other two possible scenarios.


According to Reuters, should the court take the case, the parties could expect resolution to come at some point next term, later if the Supreme Court seeks the input of the U.S. Solicitor General.

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