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US Supreme Court Ruling on Argentina To Set Sovereign Bond Precedent

What the US Supreme Court decides in a key court case involving Argentina and its bondholders will greatly impact how sovereign debt restructuring is done in the future.

The essence of the decade-long lawsuit between the country and a handful of its creditors is: Can bondholders demand full repayment of what they lent to a country even when others have settled for a haircut?

Argentina’s 2002 default of around $100bn (£61bn) was the largest at the time, until Greece’s around 200bn euros debt restructuring.

What the US Supreme Court decides could have bearing on the question of so-called “hold-outs”.

In 2005 and 2010, 92% of Argentina’s bondholders accepted around 30% repayment in two debt exchanges.

But not two hedge funds, NML Capital and Aurelius, who are demanding 100% repayment of their $1.3bn lent to the country.

Argentina’s position is that these creditors won’t be paid at all since they refused to participate in the debt exchanges.

But an influential US appeals court ruled that Argentina cannot just pay the ones that accepted the debt restructuring, but must repay all of its creditors, including the hold-outs.

If it doesn’t, then it opens the possibility of a technical default by the country.

via BBC [1]

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Alfonso Esparza

Alfonso Esparza [6]

Senior Currency Analyst at Market Pulse [7]
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza
Alfonso Esparza

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