AVVISO n. 198
... • National Guaranteed Loans. Tax-secured loans that the Government exchanged for previously outstanding Government bonds as
part of a voluntary debt offers that took place in 2001. Holders of National Guaranteed Loans retained the right to recover their
original bonds upon default.
The pari passu clause in sovereign debt instruments
... obligation."); Lee C. Buchheit, The Pari Passu Clause Sub Specie Aeternitatis, INT'L FIN. L. REV., Dec. 1991.
at 11, 12 ("[h1f a sovereign borrower intends as a practical matter to discriminate among its creditors in terms
of payments, the pari passu undertaking will at least prevent the sovereign f ...
Count the Limbs: Designing Robust Aggregation Clauses in
... Argentina’s 2001 default revealed vulnerabilities in series-by-series CACs. In Greece, blocking
positions led more than half of all foreign law bonds to drop out of the restructuring, even though
most Greek foreign law bonds had CACs. These bonds continue to be paid in full (Zettelmeyer,
The Trust Indenture Act of 1939 and Out-of
... insolvent company but, instead, become the gains of (or “buoy up”) those
bondholders who held out. This is referred to as a “holdout” problem, and at
its most pernicious, a holdout problem can entirely undermine an out-of-court
restructuring.37 To see this, let us return to the example.
Suppose that ...
The Argentina Debt Case* Jayati Ghosh
... Argentina but for finance in general. The Argentine government appealed against it, but this
appeal has now been dismissed by the US Supreme Court.
Consider just some elements of this US court decision. First, it is based on a peculiar and
unprecedented interpretation of the pari passu (equal treat ...
Argentine debt restructuring
Argentina began a process of debt restructuring on January 14, 2005, that allowed it to resume payment on the majority of the USD 82 billion in sovereign bonds that defaulted in 2002 at the depth of the worst economic crisis in the country's history. A second debt restructuring in 2010 brought the percentage of bonds out of default to 93%, though ongoing disputes with holdouts remained. Bondholders who participated in the restructuring, accepted repayments of around 30% of face value and deferred payment terms, and began to be paid punctually; the value of their bonds also began to rise. The remaining 7% of bondholders later won the right to be repaid in full.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. The holdout bondholders found themselves unable to seize Argentine sovereign assets in settlement, but realized that Argentina had omitted to provide for holdout situations and had instead deemed all bonds repayable on pari passu (equal) terms that prevented preferential treatment among bondholders. The holdout bondholders therefore sought, and won, an injunction in 2014 that prohibited Argentina from repaying the 93% of bonds that had been renegotiated, unless they simultaneously paid the 7% holdouts their full amount due as well. Together with the agreement's Rights Upon Future Offers (""RUFO"") clause, this created a deadlock in which the 93% of renegotiated bondholders could not be paid without paying the 7% holdouts, but any payment to the holdouts would potentially (according to Argentina) trigger the 93% being due repayment at full value too; a sum of around $100 billion which Argentina could not afford. 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.Subsequently, though Argentina wanted to repay some creditors, the judgment prevented Argentina from doing so, because being forced to repay all creditors, including the holdouts, would have totaled around $100 billion. The country was therefore categorized as being in selective default by Standard & Poor's and in restricted default by Fitch. The ruling affected New York Law Argentine bonds; Argentine bonds issued under Buenos Aires and European Law were not affected.Proposed solutions include seeking waivers of the RUFO clause from bondholders, or waiting for the RUFO clause to expire at the end of 2014. The dilemma raised concerns internationally about the ability of a small minority to forestall an otherwise-agreed debt restructuring of an insolvent country, and the ruling that led to it was widely criticized both within the United States and internationally.