The Republic of Argentina returned to global debt markets after a 15-year absence on April 19, 2016, when it sold $16 billion in bonds to fund a series of landmark settlements reached earlier this year with holdout bondholders from the South American nation's 2005 and 2010 debt restructurings. This latest development in the more than decade-long battle between Argentina and the holdoutsled by hedge funds Aurelius Capital Master Ltd. ("Aurelius") and NML Capital Ltd. ("NML")may provide an unlikely, albeit welcome, dénouement to a story that has long captivated the international communityso much so, that Argentina's protracted sovereign debt saga even prompted the United Nations and other international organizations to call for the implementation of regulations specifically designed to curb perceived abuse by "vulture" investors speculating in sovereign debt.
The story began in December 2001, when Argentina announced that it was suspending payments on approximately $90 billion in bonds marketed during the previous decade to individual, and in some cases institutional, investors in Argentina, Italy, other parts of Europe and Latin America, and the U.S. The ensuing default in 2002 pushed Argentina into the worst economic crisis in its history.
Argentina restructured its debt in 2005 and again in 2010 by exchanging new bonds for defaulted bonds. The holders of 93 percent of the defaulted debt agreed to the exchanges. Pursuant to a "temporary moratorium" renewed each year, Argentina made payments to exchange bondholders but did not pay bondholders who did not participate in the exchanges. Holdout bondholders (representing the remaining 7 percent of Argentina's defaulted debt)many of which, like Aurelius and NML, acquired the debt at a steep discountsued Argentina in the U.S. District Court for the Southern District of New York (the old bond instruments having been governed by New York law) to collect unpaid principal and interest. The holdouts ultimately obtained several large judgments against Argentina, all of which were affirmed on appeal to the U.S. Court of Appeals for the Second Circuit. According to these rulings, holdout bondholders were entitled to be repaid the full face value of the bonds they held.
On February 23, 2012, U.S. district court judge Thomas P. Griesa ruled that Argentina's continued payments to exchange bondholders violated the pari passu, or "equal treatment," clause in the original bond indenture, and he enjoined further payments to exchange bondholders without corresponding payments to holdout bondholders. The Second Circuit Court of Appeals upheld that ruling in NML Capital, Ltd. v. Republic of Argentina, 699 F.3d 246 (2d Cir. 2012). The U.S. Supreme Court refused to review that ruling on October 7, 2013.
Issuance of the injunction sparked an all-out war of litigation...