Sovereign Debt Litigation: District Court Opinion Limits the Applicability of Previous Pari Passu Decisions in the Argentine Debt Litigation

Sullivan & Cromwell LLP - December 29, 2016

In a decision last week in the long-running Argentine debt litigation, the United States District Court for the Southern District of New York spelled out significant limitations on prior rulings it had issued that were based on the pari passu clause in Argentina’s defaulted bonds.  In those earlier rulings, the court had imposed injunctions barring Argentina from performing on new debt unless it likewise paid the defaulted debt.  Those injunctions were lifted earlier this year in a settlement with most of the holdout creditors.  In the new decision, the court held that Argentina’s payments to creditors who participated in the settlement were not a violation of the rights of the non settling investors.  The Court also found that even if the pari passu clause had been breached, monetary damages would be barred as duplicative of the damages from failure to pay, and an injunction would be granted only in extraordinary circumstances.  The district court’s new opinion seems likely to limit the precedential effect of its earlier rulings on sovereign debt restructurings for the large number of still-outstanding securities that contain pari passu clauses similar to those in the defaulted Argentine bonds, even as the market has now moved to different wording for the rankings clause in New York-law governed sovereign debt securities.