Sovereign Debt Update - July/August 2014

The long-running dispute over the payment of Argentina's sovereign debt has been particularly active in recent months and weeks. On June 16, 2014, despite the Republic of Argentina's warning that it may once again be forced to default on its sovereign debt, the U.S. Supreme Court denied Argentina's petition seeking review of lower court rulings that: (i) construed pari passu, or equal footing, clauses of a bond indenture to prohibit Argentina from making payments to bondholders who participated in 2005 and 2010 debt restructurings before it pays $1.4 billion to holdout bondholders (see NML Capital, Ltd. v. Republic of Argentina, 699 F.3d 246 (2d Cir. 2012)); and (ii) upheld a lower court's order directing Argentina to pay holdout bondholders $1.4 billion (see NML Capital, Ltd. v. Republic of Argentina, 727 F.3d 230 (2d Cir. 2013)). The Court also denied certiorari in a related appeal by certain non-party bondholders (Exchange Bondholder Group v. NML Capital Ltd., No. 13-991).

Argentina's economy minister announced on June 17, 2014 that, in an effort to continue meeting Argentina's obligations to creditors who participated in the country's previous debt restructurings (the "exchange bondholders"), the government is taking steps to execute a debt swap governed by Argentine law. In response, U.S. District Court Judge Thomas Griesa, who originally ordered Argentina to pay the $1.4 billion to holdout bondholders on November 21, 2012, directed Argentina at a hearing held on June 18, 2014 to comply with his previous orders before it could make a $900 million payment on June 30 to its exchange bondholders. Representatives from the Argentine government later announced that they would meet with the holdout bondholders, including NML Capital and Aurelius Capital, in an effort to negotiate a settlement.

On June 20, 2014, Argentine President Cristina Kirchner stated in a nationally-televised speech that her government wants to reach a settlement with the holdout bondholders, but only if U.S. courts create the right conditions for negotiations. On June 23, 2014, Argentina asked District Court Judge Griesa to suspend rulings directing the country to pay holdout bondholders so that the parties can engage in settlement talks. According to Argentina, paying $1.4 billion to holdout bondholders when it makes the next regularly scheduled payment on its restructured debt would wipe out half its cash reserves due, among other things, to a "right upon future...