On March 31, U.S. District Judge Loretta Preska of the Southern District of New York ruled that the Republic of Argentina does not owe more than $650 million to hedge funds that had speculated on certain of its GDP-linked securities.
The litigation involved securities that the Republic issued in 2005 and 2010 in debt restructurings. The securities provided for contingent payments to be made when various triggers were met, including that Argentina’s GDP grew by 3 percent or more in a given year. In 2014, the method for estimating Argentina’s GDP changed, and no payment was due for 2013 based on the published GDP figures. Six hedge funds claimed they were owed a payment for 2013 and sought $650 million.
In a summary judgment ruling, Judge Preska held that the plaintiffs’ claims were barred by the “No-Action Clause” in the securities’ indenture. This clause barred any lawsuit by investors who do not satisfy prerequisites to bringing suit, including showing that they have the support of a specified percentage of investors. The plaintiffs attempted to rely on an exception for direct suits by bondholders to receive payment of principal and interest.
The court ruled that contingent payments are not covered by this exception. This ruling provides needed clarification for the interpretation of the “No-action” clauses, which are an important standard provision of indentures. The ruling reaffirms that these clauses must be strictly construed to protect against the risk of litigation unpopular with a majority of bondholders.
The S&C team representing the Republic includes Robert Giuffra Jr. Sergio Galvis, Amanda Davidoff, Thomas White, Leonid Traps, Elizabeth Rose, Hattie Middleditch, Arturo Carlos Schultz, Beatriz Albornoz, Stephanie Kelly, Sophie Kivett, Medina Sadat, Hannah Masters, Alexandra Rogers, Qingyang Song and Laura Pessarini. Joseph Neuhaus and Alan Sinsheimer provided valuable input at all stages of these actions.
The American Lawyer’s Litigation Daily named Robert Giuffra Jr., Sergio Galvis, Amanda Davidoff and Thomas White runner-up “Litigators of the Week” for this result.