Sergio Galvis Authors Capital Markets Law Journal Article on Pari Passu Clause

July 7, 2017

On July 7, Capital Markets Law Journal, a publication of Oxford Press, published an article titled “Solving the Pari Passu Puzzle: The Market Still Knows Best,” authored by Sergio Galvis. The article explores the ways in which the pari passu clause and corresponding collective action clauses, revised for both the New York and English law markets, have affected the international sovereign bond market following the Argentine sovereign debt crisis and resulting holdout litigation. Sergio argues that subsequent court rulings after the initial pari passu ruling in the Argentine sovereign debt crisis case suggest the ruling would likely not be broadly prescribed. Specifically, the same judge who ruled on the initial pari passu ruling held in a recent case that Argentina’s payments to holdout creditors who participated in a 2016 settlement of claims did not violate the rights of the non-settling investors and that even if the pari passu clause had been breached monetary damages would be barred as duplicative of the damages arising from the failure of Argentina to pay and an injunction would be granted only in extraordinary circumstances. In addition, a court in another recent case refused to import the equitable relief set forth in the Argentine case, limiting the findings of the Argentina case to the specific facts and circumstances set forth therein. Alongside these rulings, market participants (in a process in which Sergio, Christopher Mann and others at S&C played a significant role) revised the pari passu clause (renamed a ranking clause) and collective action clauses in new sovereign bonds to further strengthen flexibility in a restructuring and guard against future holdout scenarios. Sergio notes that these developments “have brought greater certainty to market participants and should serve to facilitate efficient restructurings in the future without the need for extra-contractual restructuring mechanisms and remedies.” Megan O’Flynn provided valuable assistance in the preparation of the article.