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September 23, 2017

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US Supreme Court rejects Argentine debt appeals in favor of speculators

WASHINGTON -- The U.S. Supreme Court on Monday turned back Argentina's appeals against paying at least US$1.3 billion to "vulture fund" investors in its defaulted bonds, putting fresh pressure on the country's finances.

The justices effectively upheld an August 2013 appeals court ruling that ordered Argentina to pay NML Capital and other creditors who had refused to participate in a restructuring deal for debt on which Buenos Aires defaulted in 2001.

That opened the way for NML and others to seek immediate payment on 100 percent of the face value of the bonds they hold, even though most of the country's creditors took a huge write-down of their bonds to help the government rebuild its finances.

The ruling has ramifications for global sovereign debt markets, especially restructurings of defaulted debt that require creditors to agree and have traditionally punished holdouts who do not accept write-downs.

It also is likely to pressure the government's ability to service its debt; Buenos Aires had argued in court that a ruling for the hedge funds, which it labels "vulture funds," would force it back into default.

Stocks in Buenos Aires plunged more than 6 percent following the ruling, and on the city's currency black market, the dollar jumped 0.4 percent on the peso.

"This realistically is the end of the road" for Argentina's decadelong fight against NML, Aurelius Capital and other "holdouts," said Anna Gelpern, an expert in sovereign finance at Georgetown Law School and the Peterson Institute in Washington.

She said it is now "weeks and days" before the country has to pay up or default.

JubileeUSA, which speaks for a number of anti-poverty organizations, said it was dismayed that the court had rewarded speculators while harming the interests of the majority of bondholders.

"Unfortunately the Supreme Court said to the financial world that this behavior is considered to be legitimate and, even more, profitable," said Jubilee executive director Eric Lecompte.

"This totally undermines how the financial system restructures debts."

The court dismissed two challenges by Argentina. One was on whether it had to repay the hedge funds the full value of their bonds while repaying the much larger group of creditors, the so-called exchange bondholders who participated in the restructuring — much less.

The second was on whether Argentina is protected under U.S. law from creditors seeking information on Argentinian government assets in the United States, in case they seek to have those assets blocked.

On the first issue, the court made no comment, leaving Argentina no recourse but to begin paying both groups of creditors.

On the second, the court ruled that the U.S. Foreign Sovereign Immunities Act does not protect the country from "discovery" of its assets, and that seizure of those assets is a separate issue.

A third challenge, by the exchange bondholders, was also turned back by the court with no comment.

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