By Joe
Vladeck
The
legal battle between the Republic of Argentina and hedge fund Elliott
Associates (a.k.a. NML Capital, Ltd.) appears to be headed to the Supreme
Court. The long and hard-fought dispute is set for yet another round
following the Second Circuit's recent refusal to strike down an injunction
that, in short, would prevent Argentina from continuing to pay bondholders who
agreed to a 2005 restructuring agreement unless Argentina also agreed to pay a
small group of holdout bondholders. Check out Credit Slips'
exhaustive coverage of the case to get caught up.
The injunction and
the Second Circuit's ruling,
which Reuters columnist Felix Salmon characterized as pinched,
pedantic, and poltroonish, have the potential to dramatically shift the
balance of power in the global sovereign debt markets. Bondholders who agreed
to Argentina's restructuring plan face the prospect of not getting paid, and payment
system participants may be found liable for facilitating Argentina's selective
bond payments. The strategy of the holdouts is close to vindication. For
the time being, the Second Circuit stayed enforcement of the injunction so that
the Supreme Court can consider Argentina's petition for a writ of certiorari.
Absent further action from the Supreme Court, the forecast for sovereign
debt restructuring looks cloudy.
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