U.S. Supreme Court Rejects Argentine Petition

A newsstand owner counts Argentine pesos bills in Buenos Aires.(LEO LA VALLE/AFP/Getty Images)

Analysis

The U.S. Supreme Court rejected a petition from the Argentine government June 16, effectively ending years of legal battles in U.S. courts. The decision not to hear Argentina's case means that a 2012 ruling by lower courts, which forced Argentina to pay holdout creditors, remains intact.

The decision by New York District Judge Thomas Griesa said that if Argentina intended to make payments to creditors holding bonds issued in 2005 and 2010, when it restructured its debt, it would have to pay the full value of bonds held by creditors who refused to renegotiate their bonds after the default, known as the holdouts.

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Of the original $95 billion default from Argentina's 2001-2002 economic crisis, a total of 93 percent of creditors participated in the previous debt restructures. Roughly $15 billion, a sum that includes estimated interest, remains in default. At stake in this court case is $1.3 billion worth of debt held by a group of holdouts led by NML Capital. Argentina might be able to settle the $1.3 billion in one payment, but with only $28 billion in foreign exchange stored at the Central Bank, it cannot afford to pay the $15 billion owed to all holdout creditors at once.

Nevertheless, Argentina has recently showed a renewed interest in regaining access to international credit markets, and a May deal with the Paris Club paved the way to renewed lending from sovereign institutions. A settlement with the holdouts would go a long way to restoring Argentina's reputation, and a deal of some kind seems increasingly likely.

Argentina has three options. The first option is to refuse to pay, which would trigger an automatic default on debt payments owed to bondholders who participated in the 2005 and 2010 restructuring. The second option is to comply fully with the district court ruling and pay NML and its partners $1.3 billion immediately. This option would open Argentina up to being sued by the bondholders who previously restructured because they are entitled to claim any better terms voluntarily offered by Argentina to other holdout creditors up until the end of 2014. The third option would have Argentina reach an agreement with NML Capital to settle its debts, but not until 2015, when Argentina would not have to pay out the terms of the new agreement to bondholders who had settled earlier. We consider the third option the most likely one.

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