By Mark S. Nelson, J.D.
A federal judge in Manhattan added one more item to Argentina’s list of debt woes by ruling that a group of funds holding the country’s defaulted bonds can get specific performance of a key term in the bond agreement at issue in the case. The bondholders already had obtained a partial win when the court determined that Argentina was still violating the pari passu term in the agreement (NML Capital, Ltd. v. The Republic of Argentina, October 30, 2015, Griesa, T.).
The dispute is rooted in an earlier attempt by Argentina to pay some bondholders under a different arrangement that involved exchange offers. While most bondholders took that offer, others still want payment of the bonds they originally bought.
The court’s latest order grants 49 bondholders specific performance of their bonds. That means Argentina must make ratable payments on those bonds any time it pays out on the bonds subject to the exchange offers. Judge Griesa said specific performance was justified because no money remedy adequately protects these so-called “me too” plaintiffs and the equities favor this relief.
According to the court, Argentina has defaulted on the exchange bonds, and yet the country has indicated its ability to make some payments. Under the court’s order, the me-too plaintiffs will have equal status with the lead plaintiffs. Moreover, the judge said the Foreign Sovereign Immunities Act was inapt because the court need not take dominion over sovereign assets and Argentina can pay bondholders with any assets its chooses.
But as a practical matter, the court’s ruling focuses on the equality of footing between the different sets of bondholders. As a result, if Argentina makes payments to some bondholders, it must also pay the me-too plaintiffs. And yet compliance by Argentina with the court’s injunction can occur even if it never pays up because Argentina need only give the same treatment to the different holders of its external debt.
The case is No. 11-cv-4908.