Argentina said Tuesday it had appealed to the U.S. Supreme Court against a lower court order to pay off hedge fund investors in its bonds, arguing that order violated its sovereignty.
Taking its two-year battle against the investors, which it calls “vulture funds,” to the highest U.S. court, Buenos Aires said the lower court was wrong in trying to force the country to pay them out of reserves it says are immune from such orders.
In addition, it said, enforcing the lower court ruling could wreak havoc with restructurings of sovereign bonds generally, having a potential deep effect on global sovereign bond markets.
In key rulings in 2012 and 2013, the U.S. District Court in New York said Argentina had to pay NML Capital and Aurelius Capital 100 percent of the face value of the Argentine debt they hold, as well as accrued interest and penalties.
The two U.S. investment houses were among a small group of “holdouts” which did not take part in the 2005 and 2010 restructurings of some $100 billion in debt the country defaulted on 13 years ago.
While 93 percent of the investors took large writedowns on the debt in the negotiated deal, the holdouts have persisted in their claims for full payback.
The New York court’s ruling gave NML and Aurelius the right to pursue Argentine sovereign assets — mainly bank accounts held offshore — to that end.
After a higher New York court rejected Argentina’s first appeal last year, the government resolved to petition the Supreme Court in the case.
Argentina said in the statement that the lower court erroneously interpreted the U.S. Foreign Sovereign Immunities Act, which it argues protects its government accounts in US banks, among others.
In addition, it takes issue with the lower court’s view that the country’s bond contracts require it to repay the holdouts if it also repays the restructured bond holders.
Argentina argues that the hedge funds bought the bonds at a steep discount after it got into trouble and do not have the same rights as the restructured bond holders.
“Because there is no sovereign bankruptcy regime, Argentina followed established international practice and has successfully restructured almost 93 percent of its debt, servicing bondholders ever since,” the government said.
“The consequences of this case go well beyond Argentina. If left unreviewed, the lower court orders could render future sovereign debt restructurings virtually impossible.”
[Image via Agence France-Presse]