The row between bondholders, including hedge funds, and the Republic of Argentina highlights some of the challenges and risks that investors face when investing in sovereign debt. In October 2012, the U.S. Court of Appeals for the Second Circuit (Court) ruled that Argentina had violated the pari passu
clause in its Fiscal Agency Agreement Bonds (FAA Bonds) when it refused to pay holdout FAA Bondholders who had not exchanged their bonds in various exchange offers. See “Hedge Funds Win Battle to Enforce Argentina’s Defaulted Bonds as Second Circuit Upholds Ruling that Argentina Violated Pari Passu Clause by Paying on New Bonds While Refusing to Pay on Defaulted Bonds
,” Hedge Fund Law Report, Vol. 5, No. 43 (Nov. 15, 2012). Recently, the Second Circuit handed another victory to those bondholders, upholding the subsequent November 2012 ruling by Judge Griesa of the U.S. District Court for the Southern District of New York (District Court) indicating that if Argentina made any payment on the bonds issued in exchange for the FAA Bonds (Exchange Bonds), it would also have to repay the FAA Bonds in full. See “U.S. District Court Rules in Favor of FAA Bondholders in Dispute with Argentina in Clarifying the Scope of Its Injunctions Requiring Argentina to Make ‘Ratable’ Payments on FAA Bonds
,” Hedge Fund Law Report, Vol. 5, No. 46 (Dec. 6, 2012). The Court rejected arguments that the District Court’s injunctions would harm Argentina, the holders of Exchange Bonds, the parties involved in facilitating payments on the Exchange Bonds and the capital markets. However, the Court stayed the enforcement of the injunctions pending Argentina’s appeal to the U.S. Supreme Court. This article summarizes the arguments advanced by Argentina and other interested parties and the Court’s reasoning in upholding the District Court’s ruling.