Pari passu poetry (doggerel, more like it...)
We are in a brief pari passu hiatus while we wait for the Supreme Court to decide what it wants to do with Argentina's first petition for certiorari and for the Second Circuit to decide the petitions for panel and en banc rehearing that have been filed by Argentina and others. (Briefs and opinions here). Given the temporary lull, it seemed a good time to reflect briefly on the fact that, thanks to the Second Circuit, we finally, after over 100 years, know what pari passu means when used in a sovereign bond.
Without repeating the details, the short version is that the appeals court interpreted the clause to allow a sovereign to refuse to pay holdouts, but not when the sovereign is mean about it. In the court's view, Argentina breached the clause by enshrining its refusal to pay NML in legislation (the Lock Law), repeatedly vowing in public not to pay NML, and generally pairing its refusal to pay with "extraordinary behavior" (p. 23 of the most recent opinion). Basically, in Anna Gelpern's accurate shorthand formulation: "selective nonpayment plus somethingorother means breach" of pari passu.
Reader, I must confess that I had my doubts about this interpretation.
Why, exactly, would investors value such a random and unpredictable form of protection against selective nonpayment? But my doubts were stilled during a recent trip to the famed pari passu archives in Strelsau, Ruritania.
There, I found the amazing scroll you see to the right (click to enlarge), which seems rather definitive as to the historical meaning of pari passu, at least at it was understood by the famously-indebted nation of Ruritania. The meaning seems to have been well enough settled that the early Ruritanian bards saw fit to incorporate pari passu into their poetry. Long live "selective nonpayment plus somethingorother!"