Pari Passu Endgames: Now With Even More Unequal Treatment!
The ending of the pari passu saga was destined to be somewhat messy, if only because it would force the court to confront the fundamental illogic of the injunction. If we accept that each holder of bonds untendered in the 2005 and 2010 exchanges has a contractual right to equal treatment, then any settlement with less than 100% participation can be blocked by holdouts, who are, after all, denied equal treatment when settling bondholders get paid. And there are further wrinkles. For example, Argentina's current settlement proposal treats holdouts with injunctions differently from holdouts without injunctions, and this too is incompatible with equal treatment. (The equal treatment obligation stems from the underlying bond contract, not from the injunction...) Of course, nothing prevents bondholders from agreeing to accept unequal treatment. But a holder that rejects the settlement would have an additional reason to complain.
The court won't be able to avoid such questions. Here's a brief opposing Argentina's request to lift the injunction filed by a group of proposed intervenors--holders of English- and German-law bonds--who object to being treated differently on account of not (yet) having injunctions. At the moment, they simply want the court to keep the injunction in place. But the logic of the injunction is such that they should be entitled to block any payments to settling bondholders.
There will have to come a point when remaining holdouts are no longer entitled to block payments, and we are clearly nearing that point. Courts should not issue or maintain injunctions that do not serve the public interest. As more claimants settle, and remaining holdouts seem increasingly unreasonable, the public interest may point towards lifting the injunction. But it will be interesting to see how the court justifies this decision. And it will be more than a little ironic if the court lifts the injunction to facilitate a settlement that itself violates the promise of equal treatment.
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