Argentina's default on its sovereign debt

Argentina's default on its sovereign debt

After failing to reach an agreement with the bondholders who declined the restructuring offers it proposed in 2005 and 2010, Argentina again defaulted on its sovereign debt on 31 July 2014. Noiana Paula Marigo, a partner in the New York office of Freshfields Bruckhaus Deringer, considers Argentina’s dispute with the holdout creditors and the potential consequences of this new default for Argentina, its bondholders and foreign investors.

Original news

Press Release: ISDA Americas Credit Derivatives Determinations Committee—Argentine Republic failure to pay credit event

The International Swaps and Derivatives Association’s (ISDA) Americas Derivatives Determinations Committee has ruled that Argentina has failed to defaulted on its credit liabilities. The committee has resolved to hold an auction in respect of outstanding credit default swaps and the ISDA will publish further information regarding the auction online.

What is the background to Argentina’s dispute with its holdout creditors?

In 2001, Argentina defaulted on approximately $90bn of sovereign bonds (defaulted bonds). Argentina managed to restructure most of its debt in 2005 and 2010, by offering creditors new bonds (restructured bonds) in exchange for defaulted bonds. 93% of the holders of defaulted bonds accepted this restructuring.

Some of Argentina’s holdout creditors, predominantly hedge funds, claimed full payment of the sums they were owed, mainly in New York courts (in respect of bonds issued under New York law). Holdout creditors also sought relief before the domestic courts of France, Germany, Belgium and the UK, but with limited success. Finally, a group of Italian holdout creditors brought a claim pursuant to a bilateral investment treaty between Argentina and Italy. This claim is being heard by an international arbitral tribunal constituted under the auspices of the International Centre for the Settlement of Investment Disputes (ICSID), which is part of the World Bank.

In December 2011, Judge Thomas Griesa of the Southern District Court of New York ordered Argentina to pay the holdout

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About the author:

Meet Emma:

1.Banking and finance lawyer with experience in derivatives, debt capital markets, securitisation and structured finance in London and Paris

2.Likes ballet, playing the harp and holidays

3.Thinks the law is always changing!

Emma trained and qualified at Allen & Overy LLP and worked in their derivatives and structured finance teams in London and Paris.  She then joined the foreign exchange prime brokerage legal team at Deutsche Bank before spending 4 ½ years with Crédit Agricole CIB advising the fixed income and derivatives desk.