Argentina asked the U.S. Supreme Court to review a case that has unsettled the country’s financial markets and might force it to make payments on billions of dollars of defaulted bonds.
In a papers filed today in Washington, Argentina challenged a lower court ruling that said the country must pay owners of the repudiated bonds in full before it can make payments on a separate $24 billion in restructured debt. Argentina is fighting claims by a fund, controlled by billionaire Paul Singer, that holds some of the defaulted debt.
The legal fight has put U.S. courts in the unusual position of shaping another country’s financial future. Argentina says the dispute threatens to force a new default, and lower court rulings have led Standard & Poor’s, Fitch and Moody’s to lower the country’s bond ratings.
The lower court rulings “effectively reach into Argentina’s borders, coercing it into violating its sovereign debt policies and commandeering billions of dollars of core sovereign assets,” the country argued in its appeal, filed by former U.S. Solicitor General Paul Clement.
In addition to seeking a Supreme Court hearing, Argentina is asking the justices to get guidance from New York’s highest court on a state-law issue that is central to the case.
Under the Supreme Court’s normal scheduling practices, the justices may say as soon as April whether they will consider the appeal. They would hear arguments and rule during the nine-month term that starts in October.
The Supreme Court hears a case only if four of the nine justices vote to take it up. Argentina starts with a potential disadvantage because Justice Sonia Sotomayor might not take part. She disqualified herself from an earlier appeal, possibly because she was previously involved in the litigation as an appellate judge.
The appeals court rulings in the case are on hold while the Supreme Court decides whether to get involved.
Singer’s NML Capital Ltd., a unit of Elliott Management Corp., says Argentina is exaggerating the effect of the appeals court rulings, which directly affect claims for $1.5 billion. The fund says Argentina can afford to pay both sets of bondholders.
“Argentina’s arguments for prolonging this dispute are without merit and entirely unnecessary,” Jay Newman, a senior portfolio manager at Elliott, said in a statement. “If Argentina were willing to talk to its creditors, this dispute could be resolved quickly.”
The bondholders are represented by another former U.S. solicitor general, Theodore Olson. The solicitor general is the federal government’s top Supreme Court lawyer.
The dispute stems from Argentina’s 2001 default on a record $95 billion in debt. The country offered to substitute bonds worth 25 cents to 29 cents on the dollar in 2005 and made a similar proposal in 2010. Owners tendered about 92 percent of the outstanding debt.
NML sued to collect the full amount. NML said a “pari passu” clause in the bond agreement bars Argentina from treating the restructured securities more favorably than the defaulted bonds.
A federal trial judge agreed with that argument, as did the New York-based 2nd U.S. Circuit Court of Appeals. Argentina urged the Supreme Court to ask New York’s highest court to say whether that interpretation is correct under state law.
Argentina also contends that the lower courts violated a U.S. sovereign immunity law by dictating what the country must do with property located outside the U.S.
In an opinion in August, the appeals court said Argentina’s predictions of a financial cataclysm were “speculative, hyperbolic and almost entirely of the republic’s own making.”
The country is exploring options for trying to sidestep the appeals court rulings. Argentine President Cristina Fernandez de Kirchner said in August that the country will offer a new restructuring plan to defaulted bondholders and let investors who own the restructured notes swap them into debt subject to local law.
A U.S. judge barred Argentina from going forward with that plan, calling it “an apparent attempt to evade” his previous orders.
Argentina previously said it would never pay the funds, which the country’s leaders have called “vultures.” Its legislature passed a law in 2005 barring payment on the defaulted bonds.
The Supreme Court last year rejected Argentina’s appeal in an earlier round of the litigation.
The court is already considering a separate case stemming from the Argentine debt fight. The court will hear arguments in April on a lower court order requiring two banks to turn over information about the country’s assets.
The case is Argentina v. NML Capital.