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Pari passu poetry (doggerel, more like it...)

posted by Mark Weidemaier

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. Find in RuritaniaWhy, 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!"

Comments

A parri passu legal decision based on one party's attitude will set no precedent. How can a court in the US determine that a legislative process in Argentina is "extraordinary"? The court now finds the will of a sovereign's people out of line? Id the court uses the term "sovereign" it should sit down and understand exactly what is meant by the term. What a disaster of a ruling.

Is everyone in Argentina quite so ignorant as the president and the legislature? The "new" bonds were sold under New York law - that's where Argentine sovereignty was waived - because if they had been peddled to investors under Argentine law nobody would have bought them.

How can this be not clear, at least to alleged legal experts?

The bonds weer sold under a law that has now changed, which is why the recipients of the new bonds that NML purports to intercept, are petitioning the Court. The Second Circuit makes specific reference to domestic Argentine democratic politics as being hostile to NML. Is that appropriate? Now many of the bondholders want to deal under Argenite law to get away frmo this lawsuit in new York, and the courts in NY are being asked to interpret even that action as being in contempt! The US government, France, and others are now filing amicus briefs saying this is definitely extra-territorial. Bad law from a stiff judiciary.

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