Argentine debt restructuring

[6][7] As part of the restructuring process, Argentina drafted agreements in which repayments would be handled through a New York corporation and governed by United States law.

[9] The courts ruled that as Argentina had itself drafted the agreement, and chosen the terms it wished to propose, it could not now claim the terms were unreasonable or unfair, and that this could not be worked around by asserting sovereign status since the injunction did not affect sovereign assets, but simply ruled that Argentina must not give preferential treatment of any group of bondholders over any other group when making repayments.

[9] The dilemma raised concerns internationally about the ability of a small minority to forestall an otherwise-agreed debt restructuring of an insolvent country,[9] and the ruling that led to it was criticized.

[6][23][24] Among the bondholders were vulture funds, who had speculatively acquired US$1.3 billion of the bonds' total value on the secondary market for cents on the dollar after the 2001 default.

Congressmen and becoming the top campaign contributor to a number of these; the most prominent, former Western Hemisphere Subcommittee Chair Connie Mack IV (R-FL), became the main sponsor of a bill in 2012 designed to force Argentina to pay NML nearly $2 billion before losing his Senate bid that year.

[24] Their lobbying campaign also extends to Argentina, where NML Capital finances an NGO led by Laura Alonso, a Congresswoman affiliated with the right-wing PRO party.

[32] In August 2013, the Government of Argentina lost a U.S. appeals court case and was told it had to repay the full face value amount to these holdouts.

[37] However, meeting vulture funds' full face-value demands is problematic for Argentina, because although bonds held by vulture funds are a small share of the total (1.6%), such a settlement would lead to lawsuits from other bondholders demanding to be paid on similar terms under the agreement's "rights upon future offers" (RUFO) clause, effectively unwinding the settlement by allowing all bondholders payment in full, and creating an unaffordable liability of up to $120 billion more than at present.

Consequently, Argentina has been paying debt from central bank reserves, has banned most retail purchases of dollars, limited imports, and ordered companies to repatriate money held abroad.

[2][27][50] A total of approximately US$12.86 billion of eligible debt was tendered into the exchange launched in April 2010; this represented 69.5% of outstanding bonds still held by holdouts.

[8] The Libertad, an Argentine Navy training frigate, was arrested (though not seized) at the behest of NML Capital for ten weeks in late 2012 in the port of Tema, Ghana, until the International Tribunal for the Law of the Sea ruled unanimously that it be released.

The holdout bondholders soon discovered that due to a number of sovereign immunity laws, it was impossible to actually enforce their judgments by seizing the handful of Argentine assets still within the reach of U.S. jurisdiction.

The FAA stipulated that the repayments on the bonds were to be made by Argentina through a trustee, The Bank of New York Mellon, which meant that the U.S. courts did have jurisdiction over that party to issue injunctive relief.

"[58] Argentina had argued the entire clause was intended to protect only against the first type of discrimination; the Second Circuit held that Argentina's approach was invalid because it ignored the critical differences in wording between the two sentences, treated the second sentence as redundant, and in turn violated New York's rule that "a contract should not be interpreted in such a way as would leave one of its provisions substantially without force or effect.

[60] On August 23, 2013, the Second Circuit (in another opinion also signed by Judge Parker) affirmed the lower court's latest ruling clarifying the scope of the permanent injunctions.

The trial court has granted temporary relief to the bank, allow payment of a few of the interest payments due to holdout bondholders,[68] but the obligation to repay all holdouts as the cost of continuing to service Argentine bonds had resulted in a decision to terminate its Argentine debt servicing operation absent legal relief.

[70] The expiration of Rights Upon Future Offers (RUFO) in December 2014 will preclude other bondholders from suing for better terms should the Argentine Government and the vulture funds settle, making such a settlement all the more likely after that date should the dispute continue.

[56] In August 2014, Argentina filed a case at the International Court of Justice, alleging that through its court system's decision, the United States had "violat[ed] its sovereign immunity" and breached "[the] obligation not to use or encourage measures of economic and political action to force the sovereign will of another State",[71][72] and was responsible for permitting judicial malpractice and gross incompetence in allowing two small hedge funds to trigger a needless default against most other bondholders.

[74] Observers note that the United States must consent to the case being heard, which has only happened 22 times in the ICJ's 68 years of existence,[71][72] and a Latin American and international law specialist at Oxford Analytica observed to media that, "From the point of view of the U.S. government, the New York court system has dealt with a contractual dispute in which the executive [branch] cannot intervene.

[72] The decision was likewise rejected by the Organization of American States,[75] the G-77 (133 nations),[76] and the Council on Foreign Relations,[77] as well as by bondholders whose payments were stopped by the Griesa court.

[78][79] Large banks, investors, and the U.S. Treasury Department objected to the federal courts' decisions and expressed concern over losses that could be incurred by bondholders and others, as well over disruption in the bond markets.

Vladimir Werning, executive director for Latin American research at JPMorgan Chase, observed that vulture funds "are trying to block the payments system" in the United States itself, something "unprecedented in the New York jurisdiction".

Kevin Heine, a spokesman for Bank of New York Mellon, which handles Argentina's international bond payments, said the ruling "will create unrest in the credit markets and result in cascades of litigation, which is precisely the opposite effect that an injunction should have.

"[2] The American Bankers Association agreed, noting that "permitting injunctions that preclude pre-existing obligations whenever expedient to enforce a judgment against the debtor will have significantly adverse consequences for the financial system.

"[26] A consortium of Argentine banks, led by Argentine Banking Association (Adeba) President Jorge Brito, meanwhile presented their own settlement offer on July 30, by which all vulture fund bond holdings in dispute would be purchased in installments for a total of US$1.4 billion, but the offer was refused; Citibank, JP Morgan Chase, and HSBC joined efforts to repurchase vulture fund holdings on August 1.

[82] The Second Circuit has acknowledged that New York Judiciary Law Section 489 (descended from an 1813 statute) appears to facially prohibit "essentially all 'secondary' transactions in debt instruments where the purchaser had an intent to enforce the debt obligation through litigation", but then ruled in a 1999 decision involving Elliott Management's earlier case against Peru that the history of that section as interpreted in New York state courts revealed that it was intended only to prohibit purchases made with the sole intent of bringing a lawsuit in and of itself.

[86] The American Bankers Association warned that the district court's interpretation of the equal terms provision could enable a single creditor to thwart the implementation of an internationally supported restructuring plan, and thereby undermine the decades of effort the United States has expended to encourage a system of cooperative resolution of sovereign debt crises.

"[96] A severe devaluation of the Argentine Peso caused by high inflation, an increase in the price of the US dollar at local markets, and other international factors led the country into a monetary crisis.

[16] On August 4, Fernández reached an accord with the biggest creditors on terms for a restructuring of $65bn in foreign bonds, after a breakthrough in talks that had at times looked close to collapse since the country's ninth debt default in May.

[100] On September 7, S&P Global Ratings upgraded Argentina's long term sovereign-credit rating to "CCC+" from "SD" citing the end of prolonged foreign and local law foreign currency debt restructurings, effectively pulling the country out of default territory after the country successfully restructured over $100 billion in sovereign debt.