US Supreme Court Ruling Makes Recovery on Defaulted Sovereign Debt Easier
Last Tuesday, the US Supreme Court ruled against Argentina (Caa1 stable) in an appeal case, granting
holders of its defaulted debt the right to gather information about Argentine foreign assets from two banks.
The court ruling is credit positive for the holders of defaulted Argentine debt, and all sovereign debt issued
under New York law, because access to such information makes it easier for creditors to seize assets in the
event of default.
The litigating bondholders had previously prevailed in 11 debt-collection actions brought against Argentina
in the Southern District of New York. In aid of executing the judgments, the bondholders sought discovery
of Argentina’s property, serving subpoenas on Bank of America and Banco de la Nación Argentina, an
Argentinean bank with a branch in New York City, for records related to Argentina’s global financial
transactions. The US federal district court and then the Second Circuit of the US Court of Appeals granted
the motions to compel compliance, rejecting Argentina’s argument that the lower court’s order transgressed
the Foreign Sovereign Immunities Act (FSIA) because it permitted discovery of Argentina’s extraterritorial
assets.
On Monday, the Supreme Court affirmed the judgment of the lower courts on the grounds that the FSIA
does not provide a foreign-sovereign judgment debtor with immunity from post-judgment discovery of
information concerning its extraterritorial assets.
The implications of the ruling in the discovery case are much broader than in the parallel pari passu case.7
In the pari passu case, the court ruling is specific to the case of Argentina and the details of its debt
restructuring process, such as the specific wording of the pari passu clause in the bond contracts, the
behavior of Argentina as a debtor, and the passing of the “Padlock law,” which forbade a government
settlement with creditors that refused to participate in the debt restructuring.
In contrast, the ruling in the discovery case is not specifically tied to the case of Argentina, the bond
payment flows, or the paying agent. As such, it applies much more broadly and could serve as precedent in
the discovery of assets of any sovereign.
Last Tuesday, the US Supreme Court ruled against Argentina (Caa1 stable) in an appeal case, granting
holders of its defaulted debt the right to gather information about Argentine foreign assets from two banks.
The court ruling is credit positive for the holders of defaulted Argentine debt, and all sovereign debt issued
under New York law, because access to such information makes it easier for creditors to seize assets in the
event of default.
The litigating bondholders had previously prevailed in 11 debt-collection actions brought against Argentina
in the Southern District of New York. In aid of executing the judgments, the bondholders sought discovery
of Argentina’s property, serving subpoenas on Bank of America and Banco de la Nación Argentina, an
Argentinean bank with a branch in New York City, for records related to Argentina’s global financial
transactions. The US federal district court and then the Second Circuit of the US Court of Appeals granted
the motions to compel compliance, rejecting Argentina’s argument that the lower court’s order transgressed
the Foreign Sovereign Immunities Act (FSIA) because it permitted discovery of Argentina’s extraterritorial
assets.
On Monday, the Supreme Court affirmed the judgment of the lower courts on the grounds that the FSIA
does not provide a foreign-sovereign judgment debtor with immunity from post-judgment discovery of
information concerning its extraterritorial assets.
The implications of the ruling in the discovery case are much broader than in the parallel pari passu case.7
In the pari passu case, the court ruling is specific to the case of Argentina and the details of its debt
restructuring process, such as the specific wording of the pari passu clause in the bond contracts, the
behavior of Argentina as a debtor, and the passing of the “Padlock law,” which forbade a government
settlement with creditors that refused to participate in the debt restructuring.
In contrast, the ruling in the discovery case is not specifically tied to the case of Argentina, the bond
payment flows, or the paying agent. As such, it applies much more broadly and could serve as precedent in
the discovery of assets of any sovereign.
