And this week, on April 18, Secretary of State John Kerry asked Argentina to "normalize its relations" with its various creditors. // Argentina is expected to appeal to the Supreme Court, and the U.S. Solicitor General's office has indicated it may write an amicus curiae brief in support of the Supreme Court hearing the case.

NEWS UPDATE APRIL 23, 2013 For more information contact: Dr. Robert Shapiro Co-Chair, ATFA

An important theme in the ongoing litigation in U.S. courts over Argentina's 2005 sovereign debt restructuring is the impact of "holdout" creditors on future restructurings.  On April 10, 2013, Moody's released a report and announced its key finding, that "[H]oldout creditors have not been an obstacle to sovereign debt restructurings." The report, 'The Role of Holdout Creditors and CACs in Sovereign Debt Restructurings,' examined 34 instances of sovereign debt default since 1997.  Moody's concluded that creditors who declined an initial offer and held out for more favorable terms have affected only two of the 34 bond exchanges.  In both of those cases, Argentina (2005) and Dominica (2004), large numbers of creditors -- about a quarter of all creditors -- demanded a better offer.  Moody's also found that Argentina was a unique case in the "unilateral" and "coercive" character of its government's approach to the restructuring.

Elena Duggar, Moody's Group Credit Officer for Sovereign Risk and author of the report, noted,  "Ongoing creditor litigation over Argentina's 2005 debt exchange has been drawing attention to the role of holdout creditors and the problem of free rider incentives, leading to a large body of theoretical work on the topic.  The Moody's report reviews empirical evidence from 34 exchanges involving 20 sovereigns and both Moody's-rated and unrated debt instruments. Nine sovereigns performed several debt exchanges in a row."  In conclusion, she said, "our analysis shows that concerns over coordination problems among creditors are exaggerated."     The Institute of International Finance (IIF) similarly concluded recently that the problem lies with the actions of the Argentine government, not with creditors pressing for better terms.  IIF, made up of leading banks from around the world, noted in its April 2013 Capitol Highlights report that "Argentina finds itself in this complicated situation by its own behavior, evidenced by more than a decade of unilateral treatment of its creditors." The IIF continued:  "Since private sector creditors and investors cannot afford to wait forever, many (but not all including thousands of retail investors) have been compelled to accept Argentina's exchange offers in 2005 and 2010. Official bilateral creditors in the Paris Club on the other hand have consistently rejected Argentina's restructuring offers.  Moreover, Argentina has disregarded its international treaty obligations including to the IMF and the World Bank. Fortunately, this has been a very rare case in the recent history of sovereign debt restructuring.In every other case of the eleven sovereign debt restructuring episodes in recent times, the sovereign debtor has been able to negotiate with private creditors for a mutually acceptable restructuring deal on a fairly timely and orderly basis." In 2001, Argentina announced the largest sovereign debt default in history. For more than four years, the Argentine government declined to negotiate with its U.S. and other lenders; it then issued a take-it-or-leave-it offer in 2005.  When nearly one-half of all foreign lenders (or about one-quarter of all of Argentina's creditors) declined the offer – including U.S. pension funds and others holding several billions of dollars of the debt – the Argentine government took the unprecedented step of summarily repudiating those debts.  Today, Argentina still owes U.S. investors an estimated $3.5 billion.  And this week, on April 18, Secretary of State John Kerry asked Argentina to "normalize its relations" with its various creditors.  Currently, Argentina is appealing the U.S District court's decision in bond litigation case, NML v. Argentina.  Argentina contends that it is protected by the U.S. Foreign Sovereign Immunities Act.  However, the 2nd U.S. Circuit Court of Appeals rejected that argument and demanded that Argentina repay its bondholders.  Argentina is expected to appeal to the Supreme Court, and the U.S. Solicitor General's office has indicated it may write an amicus curiae brief in support of the Supreme Court hearing the case.

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