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NML v. Argentina: No love for exchange bondholders

posted by Mark Weidemaier

Anna Gelpern has already posted on the pari passu wipeout of Argentina. As she noted, NML got pretty much everything it wanted. By contrast, the exchange bondholders got no love whatsoever. The district judge dismissed their argument that it was unfair for NML to get 100 cents on the dollar when they had received only 30. In essence, the judge replied that exchange bondholders, unlike NML, lacked the stomach for a decade of litigation and so shouldn't complain. This may be true, but it seems puzzlingly disconnected from the realities of most sovereign restructurings. Sure, successful holdouts tend to be specialized investors with long time horizons and a fair appetite for risk. (There are of course other holdouts who don't meet this description.) But in general, holdouts recover 100 cents on the dollar only because other creditors agree to take less. If everyone had the stomach for a decade of litigation, it's likely that no one would recover in full. 

Another interesting thing about the district judge's opinion is that it doesn't really engage with any of the more substantive legal arguments made by the exchange bondholders. This is in part due, I'm sure, to the judge's desire to rule quickly, and also to the limited scope of issues on remand. So we'll see, I guess, whether their arguments get taken any more serioulsy by the Second Circuit. As Anna says, it's getting increasingly hard to see the Second Circuit making major changes at this point.


Hi Mark,

thanks for the info. Can you clarify why you (and many others) seem to think that the Second circuit won't make major changes? It appears to me, as you said, that the third parties made very good arguments as to why they were neither aiding nor abetting Argentina nor agents of the country. Griesa just seems to be shooing this to the Second circuit and hoping it works and I'm not sure how the Second Circuit will take to this.

I can't speak for others, but, from my perspective, the second circuit panel gave little indication that it was prepared to change course in any radical way. That's not to say that it won't narrow the range of third parties subject to the injunction, or make other changes to how the injunction is implemented, and of course some changes of this sort might have important consequences. But in all likelihood, more significant changes would have to come from the en banc 2d Circuit or the Supreme Court.

Great, thanks for the response!

The parties to the past restructuring didn't give up their rights as the judge implied according to the above. Indeed, in the 2005 agreement, they maintained the right until Dec 31, 2014 to receive equal terms with any subsequent restructuring offers to holdouts (technically, they in fact get better terms). This of course is a common clause in restructuring agreements. As a result, Argentina simply can't afford to pay NML what Griesa demands since they could never afford to offer similar terms for all the previously restructured debts. Griesa ignores this argument too - would you happen to know why Griesa feels this is not worth consideration in his ruling?

I don't know what Judge Griesa was thinking, but I doubt that a payment made pursuant to court order would trigger the "rights upon future offers" clause.

Correct. Settlement with holdouts on more favorable terms triggers the most favorable nations clause, but not compliance with a final judgment.

the imperialist creditor nations -- which placed themselves permanently in charge of the IMF and World Bank when they created them after WWII

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