The US Supreme Court has accepted Argentina’s request to review a key ruling in its fight against hedge funds seeking to force the country to pay up on defaulted bonds.
In the second of two petitions the country has made to the court, Argentina has objected to a lower court ruling that gave hedge fund bondholders the power to pursue the country’s non-US assets.
Argentina argues that the US Foreign Sovereign Immunities Act protects its property, including financial assets, from creditors.
In August 2012, the 2nd US Circuit Court of Appeals in New York ruled that FSIA did not prevent hedge funds NML Capital and Aurelius Capital from seeking information on Argentine assets — like data on bank accounts the government holds — as they try to press the country to repay their bonds.
The ruling gave the funds the power to enforce subpoenas against two banks for information about Argentine assets.
Petition to review ruling
The Argentina's petition to the highest court to review that ruling had the support of the US Government.
In a brief filed in early December, the US Justice Department also urged the Supreme Court to accept the appeal, arguing that the FSIA protects foreign governments’ property “unless the property is used for a commercial activity in the United States’’.
“The court of appeals’ decision is incorrect,” US Solicitor General Donald Verrilli said in the brief.
Fight with bondholders
Verrilli did not comment on any other merits of Argentina’s battle with its bondholders.
Lower US courts have ordered Buenos Aires to pay the two hedge funds the full value of the sovereign bonds they hold, even though they refused to join most of the country’s other bondholders in a restructuring of the debt.
Argentina has argued that NML and Aurelius lost their right to collect when they opted out of the 2005 and 2010 restructurings of nearly $100 billion of debt it defaulted on 13 years ago.
Buenos Aires says that paying the pair full face value for their bonds would be unfair to the restructured bondholders.
It also says being forced to pay the two in full could expand its payment obligations to others and force it back into default on all its debt.
The case has huge ramifications for the global sovereign debt market, potentially jamming up any sovereign restructuring programme such as that at the core of the massive rescue of Greece.