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Argentina Restructured Bond Holders Seek Top Court Review

Investors who hold Argentina’s restructured debt are seeking to have New York’s highest court consider whether a bond provision requires the country to equally treat holders of defaulted and new bonds.

The bondholder group, which includes Brevan Howard Asset Management LLP, Gramercy Funds Management LLC and AllianceBernstein LP, said in a court filing that interpretation by the state Court of Appeals in Albany is needed to determine whether Argentina must make payments on defaulted bonds when it pays holders of restructured debt, as a federal court judge ordered it to do.

The reading of the so-called pari passu clause also has “enormous consequences” for New York’s financial services industry, the bondholders said in the filing yesterday with the U.S. Court of Appeals in Manhattan.

“Simply put, if the existing interpretation of the pari passu clause in this appeal stands, sovereigns and other issuers will at least think twice before using the law, legal system and financial services of New York, and may well choose to do business in other financial centers such as London or Singapore,” the group said.

Argentina and the exchange bondholders, who agreed to exchange defaulted debt for new bonds, are fighting rulings by U.S. District Judge Thomas Griesa in New York that would have required the country to pay $1.3 billion owed to defaulted bondholders into an escrow account when it makes payments on the restructured debt.

$80 Billion Default

Argentina, which defaulted on $80 billion in foreign debt in 2001, argues Griesa was wrong in ruling that Argentina’s policy of making payments on restructured bonds issued in 2005 and 2010 exchanges while refusing to pay holdout creditors violates the bond terms.

Griesa agreed with the interpretation by Elliott Management Corp.’s NML Capital and other investors of the pari passu clause. He ruled that Argentina’s payments on restructured debt without paying defaulted bonds violate the provision.

“This is just one more brazen, yet frivolous, stunt pulled by exchange bondholders who, in an attempt to curry favor with the Argentine government, are taking extraordinary steps to assist Argentina in evading its contractual obligations to holders of defaulted Argentine debt,” Peter Truell, a spokesman for NML, said in a statement.

The exchange bondholder group said in the court filing that New York courts have provided no guidance on how to construe the clause in a debt contract. The resolution of how payments should be made based on the provision is a question of state law contract interpretation that should be decided by the state court of appeals, they said.

“As the history of this litigation has brought into focus, the meaning of the pari passu clause is a central issue that will determine the nature of any appropriate contract remedy,” they said.

The case is NML Capital Ltd. v. Republic of Argentina, 12-00105, U.S. Court of Appeals for the Second Circuit (Manhattan).

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