Shearman: We would expect to see a final decision from the Second Circuit in the next few weeks.

Don’t Cry for Me Argentine Bondholders: Argentina 
Responds to the Second Circuit’s Inquiry


In responding to the Second Circuit’s March 1 inquiry as to
how Argentina planned to “make current” the “original bonds”
held by the plaintiffs, Argentina has once again made it clear
that it will not treat the plaintiffs any more favorably than the
Exchange Bondholders, no matter what the judicial
consequences may be. Further, many of the points that 
Argentina advances in its reply to the Court’s inquiry have, in 
our view, already been rejected by the Second Circuit.

On March 1, the Second Circuit directed Argentina to inform the Court “how and when it
proposes to make current those debt obligations on the original bonds that have gone
unpaid over the last 11 years.” As we read that Order, the focus of the Court’s question 
(particularly when read in light of the oral argument, held just two days before the Court 
issued this order) was on the words “make current…the original bonds.” 

On Friday, Argentina released its answer, in the form of a 22-page letter to the Court. (That 
letter, together with the other papers relating to this appeal and referred to here, are all 
available on our Argentine Sovereign Debt webpage: www.shearman.com/argentinesovereign-debt. In its answer, Argentina made it clear that it is willing to offer the plaintiff
“holdouts” a package of new bonds that will allow the plaintiffs to realize the values that the
ExchangeBondholders have realized, but not the values inherent in the original bonds upon
which the plaintiffs have sued. In our view, the Court is unlikely to find this answer to be a 
sufficient basis for altering Judge Griesa’s November 21 Injunction or the “ratable payment” 
formula that is provided. 


In considering Argentina’s March 29 letter, it is important to recognize what the Second Circuit held in its
October 26 decision.1

 The pari passu clause “prevents Argentina as payor from discriminating against the FAA bonds [which are the bonds
held by the plaintiffs] in favor of other unsubordinated, foreign bonds.” October 26 decision, at 19. “Thus we have
little difficulty concluding that Argentina breached the Pari Passu Clause of the FAA.” October 26 decision, at 20.

 “Moreover, it is clear to us that monetary damages are an ineffective remedy for the harm plaintiffs have suffered as
a result of Argentina’s breach.…Insofar as Argentina argues that a party’s persistent efforts to frustrate the collection 
of money judgments cannot suffice to establish the inadequacy of a monetary relief, the law is to the contrary.” 
October 26 decision, at 24
.
 “Argentina repeatedly expresses its frustration with plaintiffs for refusing to accept the exchange offers.…But
plaintiffs were completely within their rights to reject the 25-cents-on-the-dollar exchange offers. And because the 
FAA does not contain a collective action clause, Argentina has no right to force them to accept a restructuring, even 
one approved by

a super-majority.” October 25 decision, at 26 fn. 15.

 While the Second Circuit expressed its view that it was “unable to discern …precisely how [the Ratable Payment]
formula is intended to operate,” and therefore remanded the case back to the District Court for clarification, it clearly 
affirmed the judgment of the District Court “ordering Argentina to make ‘Ratable Payments’ to plaintiffs concurrent 
with or in advance of its payments to holders of the 2005 and 2010 restructured debt….” October 26 decision, at 11
and 28.
Argentina appears to be rearguing many of these points in its letter. Most significantly, Argentina continues to argue that
the plaintiffs are not entitled to the benefit of the bargain implicit in the original unexchanged FAA bonds, and its offer to
the plaintiffs is substantially equivalent to the 2010 exchange offer. As its letter says:

 “The Republic proposes to treat plaintiffs equitably and ratably with participants in the 2010 Exchange Offer….”
March 29 letter at 2.

 “This proposal is a voluntary option: plaintiffs can choose between being paid ‘equally’ on the same terms as the
exchange bondholders, or obtaining, and seeking to execute on, judgments for the full amount of their claim….But
plaintiffs cannot use the pari passu clause – a provision plaintiffs claim protects against creditor discrimination – to
compel payment on terms better than those received by the vast majority of creditors who experienced precisely the
same default as plaintiffs, and whose restructured debt obligations arose out of, and served as consideration for the
surrender of, the very same defaulted debt held by plaintiffs.” March 29 letter, at 4; emphasis in original.

 “[P]laintiffs have a right under the pari passu clause to be treated commensurately with performing debt, not better.”
March 29 letter, at 13.
1
 The Second Circuit this past week denied Argentina’s application for en banc reconsideration of the Court’s October 26 ruling. (This result was
hardly a surprise, as the Second Circuit grants approximately 0.03% of the en banc petitions it receives. See our “Don’t Cry” note of
November 14, 2012.)



The letter then goes on to describe a variety of new par and discount bonds Argentina is willing to offer to the plaintiffs. In
arguing that these instruments provide the plaintiffs with “significant” and “substantial” compensation (March 29 letter
at 8), Argentina’s lawyers attempt to calculate the generous rates of return NML will realize on their “original bonds” if
they accept Argentina’s new offer. March 29 letter at 9 – 11. Notably, they do not detail the discount inherent in accepting
these new bonds.
We think that it is highly doubtful that the Court will rule that the offer of new instruments to the plaintiffs is an adequate 
remedy for the breach of the pari passu clause the Court has already ruled has taken place. Further, the Court has already 
made it quite clear that it will not “force” the plaintiffs to “accept a restructuring.” October 26 decision at 26 fn. 15. 

We would expect to see a final decision from the Second Circuit in the next few weeks.

http://www.shearman.com/files/Publication/2a8293eb-d203-4735-9b6e-06b3cd219d70/Presentation/PublicationAttachment/79dd836f-39e2-4749-b317-11c78c4e1684/Don%E2%80%99t-Cry-for-Me-Argentine-Bondholders--Argentina-Responds-to-the-Second-Circuit%E2%80%99s-Inquiry.pdf