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Argentina appeals to U.S. Supreme Court in bond default case

The case could bolster the rights of creditors in disputes with sovereign issuers over distressed debt.

June 26, 2013|By Ken Bensinger, Los Angeles Times

Argentina asked the U.S. Supreme Court to overturn an appeals court ruling that could force it to pay certain creditors more than $1.3 billion in a drawn-out fight over the country's 2001 default on sovereign debt.

The South American nation's appeal, filed Monday, stems from its failure to pay on $100 billion in bonds, the largest default in history. It was eventually able to restructure more than 92% of that debt, exchanging the bonds for ones that were worth about two-thirds less.

But much of the remaining debt was snapped up at a discount by bargain-hunting investors, including U.S.-based hedge funds, which took Argentina to court and demanded full value. Last October, the U.S. 2nd Circuit Court of Appeals upheld a trial court ruling that Argentina violated terms of its debt contracts.

In asking the Supreme Court to reverse the lower court's ruling, Argentina's Economy Ministry said Monday that it was protecting the country's right to self-determination.

"It's hard to conceive of an issue that's more irritating to a foreign state and the international community than an order from the court of one country to another country regarding matters that go to the heart of the definition of sovereignty," the ministry told Argentina's government-owned news service.

The case has been closely watched by international financiers, who believe it could bolster the rights of creditors in disputes with sovereign issuers over distressed debt. Some investors strategically purchase such debt at a deep discount on the secondary market in an effort to reap large returns, frequently through litigation.

One such fund, Elliott Management, holds a large share of the unexchanged Argentine debt and has been a leading force in the dispute.

Last fall, Elliott and other creditors were able to persuade a court in Ghana to seize an Argentine military vessel at port in an attempt to recover some of the money they said they were owed. The ship, called Libertad, was ultimately released, and last week Ghana's supreme court ruled that the lower body should never have detained it.

Elliott also has helped fund a public relations and lobbying group, the American Task Force Argentina, that disseminates critical coverage of the country.

Earlier this month, that group was embroiled in a controversy after it took out advertisements in the Washington Post and Politico linking the debt controversy to a 1994 terrorist bombing of a Jewish cultural center in Buenos Aires and, separately, accused the country of permitting the narcotics business to operate freely in its territory.

Anti-poverty groups also have been monitoring the case. They believe that if U.S. courts force Argentina to repay the remaining creditors in full, it would make it very hard for other countries to restructure debts they can no longer afford to pay.

Numerous friend of the court briefs have been filed in the case, including several by the U.S. Department of Justice, which has argued that Argentina should not be forced to pay the holdouts. The International Monetary Fund last month criticized the ruling as well.

Argentine President Cristina Fernandez de Kirchner, meanwhile, has said the country will never pay the holdouts more than the creditors who settled, raising the prospect of a second default if the U.S. ruling stands.

In a related case, a federal appeals court panel is weighing the amount that Argentina could be forced to pay creditors. A lower court indicated in November that it should pay face value plus back interest, or more than $1.3 billion. Should that decision go against it, Argentina said it would ask the U.S. Supreme Court to reverse that ruling as well.

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