The pari passu clause and the Argentine case

The case of NML Capital Ltd v Argentina decided by a US federal court of appeals in New York in October 2012 held that Argentina violated a standard pari passu clause in its old unrestructured bonds and therefore Argentina was ordered not to make any payments on new bonds unless it made a rateable payment to the holders of the old bonds. The new bonds had been exchanged for most of the old bonds in 2005 and 2010 pursuant to the restructuring of Argentina’s foreign debt.

The court held that the reasons for the violation were a combination, among other things, of a statute passed by Argentina preventing Argentina from paying the holders of the old bonds as hold-outs, declarations by Argentina that it would not pay the hold-outs and the persistent non-payment of the hold-outs for six years.

The pari passu clause typically provides that the bond debt will rank pari passu with other debt or, in the case of sovereigns, other external debt. It is a standard provision in international sovereign and private sector bonds…

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