On April 19, NML filed its response to Argentina’s March 29 letter proposing an alternative to the ratable payment scheme ordered by the Southern District of New York. Using unusually strong language, NML argues that Argentina “continues its long and consistent pattern of defaulting on its contractual obligations, defying the laws of the United States (which its contracts expressly invoked), and showing contempt for the courts to whose jurisdiction it unreservedly submitted.”
By way of review, on October 26, 2012, the Second Circuit affirmed judgments of Judge Griesa of the Southern District that Argentina breached its promise to grant equal treatment to debt held by NML and the other plaintiffs (the “Holdout Bondholders”) and ordered Argentina to make “ratable payments” to the Holdout Bondholders concurrently with or in advance of any payments to holders of bonds issued pursuant to Argentina’s 2005 and 2010 exchange offers (the “Exchange Bondholders”). After a February 27 hearing “to address the operation of the payment formula and the injunctions’ application to third parties and intermediary banks”, the Court ordered Argentina to submit a proposal detailing “(1) how and when it proposes to make current those debt obligations on the original bonds that have gone unpaid over the last 11 years; (2) the rate at which it proposes to repay debt obligations on the original bonds going forward; and (3) what assurances, if any, it can provide that the official government action necessary to implement its proposal will be taken, and the timetable for such action.” A memorandum describing and analyzing Argentina’s March 29 proposal can be found here.
In its response, NML argues that Argentina’s proposal (1) contravenes the Second Circuit’s October 26 decision in favor of NML and its March 1 order that Argentina submit its own ratable payment proposal, and (2) fails to demonstrate that the District Court abused its discretion.
Citing the Second Circuit’s order that Argentina’s proposal must make current and repay the “original bonds”, NML argues that “Argentina proposes to never pay its obligations on Appellees’ [Holdout] Bonds and, instead, to replace those Bonds with an assortment of new bonds modeled on—but actually substantially worse than—the [Exchange Bonds]”. In support of that claim, NML notes that:
NML then argues that the injunction ordered by the District Court was not an abuse of discretion, responding to each of the fairness arguments advanced by Argentina, as follows:
Our conviction that there is little possibility that the Court will adopt Argentina’s proposal remains strong. We remain doubtful that the Second Circuit will take the unusual step of crafting its own ratable payment scheme. Thus we expect the Court either to affirm Judge Griesa’s formula or, if it is reluctant to do so, to remand the case to the district court with instructions to craft an alternative formula.
While we are reluctant to predict the Court’s ruling as to the application of the injunction to Bank of New York and intermediate banks, we remain convinced, despite recent statements by Argentina, that mechanical and legal hurdles to achieving a “Plan B” to circumvent the injunction if upheld, are considerable.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:Wolfson-Bruce
This article was originally published by Bingham McCutchen LLP.