Clifford Chance

Sovereign pari passu clauses: NML Capital 2, Argentina 0

24 June 2014

The US Supreme Court has declined to hear Argentina's appeal against a lower court's judgment on the effect of a pari passu clause in Argentina's bonds.  This leaves in place the decision that if Argentina pays current interest on its restructured bonds, it must also pay its holdout creditors in full.  This points the spotlight directly at Argentina.  Argentina has so far flatly refused to pay the holdouts.  Will it now default on the restructured bonds, try to negotiate a settlement with holdouts or does it have a plan to circumvent the US courts? The decision also has wider implications for other sovereign borrowers.  The US court rulings make sovereign payment default even more unattractive than it would otherwise be, but careful drafting of sovereign bonds could mitigate the risk of a similar fate for other sovereign borrowers.

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