Sovereign-Debt Restructuring Update: January/February 2013

On January 10, 2013, the U.S. Court of Appeals for the Second Circuit denied a request by participating bondholders in 2005 and 2010 restructurings of the Republic of Argentina's defaulted bond debt to have New York State's highest court resolve a dispute with holdout bondholders regarding the meaning of an "equal treatment" or "pari passu" clause in the original bond indenture. See NML Capital, Ltd. v. Republic of Argentina, No. 12-105(L) (2d Cir. Jan. 10, 2013) (summary order). Participating bondholders had complained that the legal question concerning which debt takes precedence has provoked volatility in the bond markets and should be resolved by the state court whose law governs the contract. They argued that the meaning of a pari passu clause in a sovereign-debt case has not been decided by a New York state court and that if holdout bondholders—principally private-equity companies—are allowed to disrupt Argentina's sovereign-debt restructuring, countries may