In a measured opinion hewing closely to standard principles of contract interpretation, the United States Court of Appeals for the Second Circuit in NML Capital, Ltd. v. Republic of Argentina, No. 12-105, slip op. (2d Cir. Oct. 26, 2012), rejected the notion that a sovereign may issue bonds governed by New York state law and subject to the jurisdiction of the state’s courts, and then restructure those bonds in a manner that violates New York state law.The Second Circuit held in NML Capital that Argentina violated an equal treatment provision (part of a pari passu clause) requiring Argentina to rank bonds “at least equally” with other forms of External Indebtedness through “the combination of Argentina’s executive declarations and legislative enactments.” The court held that bonds issued in Argentina’s 2005 and 2010 restructuring (the “Exchange Bonds”) qualify as External Indebtedness, and to remedy the violation, the court ordered that Argentina make ratable payments to holders of defaulted bonds whenever Argentina makes payment on Exchange Bonds. In addition, the Second Circuit also held that the enforcement of the equal treatment provision did not violate the Foreign Sovereign Immunities Act (FSIA).The Second Circuit also ruled that the district court’s judgments do not have the practical… Read full this story
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