Argentina: Argentina loses court battle against hold-outs
November 12, 2012
Argentina lost a long judicial battle against a group of so-called hold-outs, bondholders who refused to take part in the 2005 and 2010 restructurings of the country's 2001 defaulted debt. On 26 October, the U.S. Court of Appeals in New York ruled that Argentina had improperly discriminated against a group of creditors that did not participate in the debt swaps. In addition, the Court ruled that the Argentinean government should also pay the plaintiffs whenever the country makes payments to bondholders who did agree to the debt swap. The Court upheld a 23 February ruling by Judge Thomas Griesa of the United States District Court in Manhattan, who claimed that Argentina had violated the pari passu provision included in its 2001 defaulted bond, which granted equal treatment to all bondholders. Bond prices slumped in the wake of the decision and the spread between Argentine bonds over comparable U.S. treasury bonds spiked, reaching 1,165 basis points on 8 November, marking the highest level recorded in the last three months. In addition, on 30 October, international rating agency Standard & Poor's cut Argentina's credit rating to B- from B, arguing that "the government [...] could face increasing debt management risks". The Appeals Court requested Judge Griesa to decide the amount and the modalities of Argentina's repayment to the hold-outs. On 9 November, Judge Griesa announced that he will make a decision on 1 December, only one day before Argentina is scheduled to make the first of three payments amounting to a total USD 3 billion to holders of restructured debt. Currently, plaintiffs are seeking to recoup a USD 1.3 billion repayment. The ruling comes at a time of great pressure on the Kirchner administration. On 8 November, thousands of protesters took to the streets of Buenos Aires and other major cities, in what constituted one of the biggest anti-government rallies in years. The demonstration reflects increasing disapproval of the government's handling of the economy, amid faltering economic activity, persistently high inflation and currency controls that have encouraged a black market for U.S. dollars. In addition, demonstrators oppose the proposed constitutional changes that would allow President Cristina Kirchner to run for a third term in the 2015 presidential elections.
Author: Armando Ciccarelli, Head of Data Solutions