The Republic of Argentina returned to global debt markets after a 15-year absence on April 19, 2016, when it sold $16 billion in bonds to fund a series of landmark settlements reached earlier this year with holdout bondholders from the South American nation’s 2005 and 2010 debt restructurings. This latest development in the more than decade-long battle between Argentina and the holdouts—led by hedge funds Aurelius Capital Master Ltd. (“Aurelius”) and NML Capital Ltd. (“NML”)—may provide an unlikely, albeit welcome, dénouement to a story that has long captivated the international community—so much so, that Argentina’s protracted sovereign debt saga even prompted the United Nations and other international organizations to call for the implementation of regulations specifically designed to curb perceived abuse by “vulture” investors speculating in sovereign debt.

The story began in December 2001, when Argentina announced that it was suspending payments on approximately $90 billion in bonds marketed during the previous decade to individual, and in some cases institutional, investors in Argentina, Italy, other parts of Europe and Latin America, and the U.S. The ensuing default in 2002 pushed Argentina into the worst economic crisis in its history.

Argentina restructured its debt in 2005 and again in 2010 by exchanging new bonds for defaulted bonds. The holders of 93 percent of the defaulted debt agreed to the exchanges. Pursuant to a “temporary moratorium” renewed each year, Argentina made payments to exchange bondholders but did not pay bondholders who did not participate in the exchanges. Holdout bondholders (representing the remaining 7 percent of Argentina’s defaulted debt)—many of which, like Aurelius and NML, acquired the debt at a steep discount—sued Argentina in the U.S. District Court for the Southern District of New York (the old bond instruments having been governed by New York law) to collect unpaid principal and interest. The holdouts ultimately obtained several large judgments against Argentina, all of which were affirmed on appeal to the U.S. Court of Appeals for the Second Circuit. According to these rulings, holdout bondholders were entitled to be repaid the full face value of the bonds they held.

On February 23, 2012, U.S. district court judge Thomas P. Griesa ruled that Argentina’s continued payments to exchange bondholders violated thepari passu, or “equal treatment,” clause in the original bond indenture, and he enjoined further payments to exchange bondholders without corresponding payments to holdout bondholders. The Second Circuit Court of Appeals upheld that ruling in NML Capital, Ltd. v. Republic of Argentina, 699 F.3d 246 (2d Cir. 2012). The U.S. Supreme Court refused to review that ruling on October 7, 2013.

Issuance of the injunction sparked an all-out war of litigation between the holdouts and Argentina, with Argentine President Cristina Fernández de Kirchner vowing never to surrender to “vulture” investors. The ensuing three years saw a flurry of court rulings, all of which reaffirmed Argentina’s obligation to pay the holdouts in full, failing which it could not make payments on exchange bonds despite the specter of another default on its sovereign debt.

Key events during this period included the following:

October 3, 2013—Judge Griesa issues an order barring Argentina from proceeding with a plan by President de Kirchner to exchange restructured bonds, which are governed by New York law, for debt instruments governed by Argentine law. The judge notes that the plan is “an apparent attempt to evade” his February 23, 2012, orders barring Argentina from paying exchange bondholders without also paying holdout bondholders.

June 16, 2014—Despite Argentina’s warning that it may once again be forced to default on its sovereign debt, the U.S. Supreme Court denies Argentina’s petition seeking review of the Second Circuit’s rulings affirming the February 2012 injunction and directing Argentina to pay holdout bondholders $1.4 billion. In a separate ruling handed down on the same day, the court affirms a Second Circuit decision directing two banks, in connection with Argentina’s long-running dispute with holdout bondholders, to disclose comprehensive information concerning assets Argentina owns outside the U.S.

June 30, 2014—Argentina fails to make a $539 million payment to exchange bondholders as a consequence of Judge Griesa’s injunction.

July 30, 2014—Argentina defaults on its sovereign debt for the second time in approximately 13 years when the 30-day grace period expires following the payment default that occurred on June 30.

August 6, 2014—Judge Griesa issues an order barring Argentina from making payments on euro-denominated exchange bonds as part of his larger decision that forbids Argentina from paying holders of dollar-denominated exchange bonds.

August 29, 2014—The International Capital Market Association, a group of banks and investors, announces a proposal designed to reduce the ability of holdout investors to undermine sovereign debt restructurings. Under the proposal, pari passu clauses would be interpreted to bind all bondholders to the terms of any debt restructuring agreement approved by at least 75 percent of bondholders.

September 4, 2014—In an effort to end-run Judge Griesa’s orders, Argentina’s Senate passes a bill authorizing its government to bypass U.S. courts and pay its bondholders through local channels. The proposal is approved by Argentina’s lower legislative body, the Chamber of Deputies, on September 11, 2014.

September 9, 2014—The United Nations (the “UN”) General Assembly passes a resolution to begin an “intergovernmental negotiation process aimed at increasing the efficiency, stability and predictability of the international financial system.” That process would include negotiations toward the implementation of a global bankruptcy process for sovereign debtors. The resolution passes by a supermajority vote of 124–11 with 41 abstentions. The U.S. votes “no” along with 10 other countries. Such a bankruptcy process could make it more difficult for holdout bondholders to prevent countries from successfully restructuring their debts and could limit future defaults.

September 26, 2014—The UN Human Rights Council passes a resolution condemning “vulture funds” like Argentina’s holdout bondholders. Among other things, the resolution notes that “vulture funds, through litigation and other means, oblige indebted countries to divert financial resources saved from debt cancellation and diminish the impact of, or dilute the potential gains from, debt relief for these countries, thereby undermining the capacity of [a Government] to guarantee the full enjoyment of human rights of its population.” The resolution, which was tabled by Argentina, Brazil, Russia, Venezuela, and Algeria, passes in the 47-member council with 33 votes in favor. Nine member states abstain and five—the Czech Republic, Britain, Germany, Japan, and the U.S.—oppose the text.

October 6, 2014—The International Monetary Fund (the “IMF”) releases a series of new proposals entitled “Strengthening the Contractual Framework to Address Collective Action Problems in Sovereign Debt Restructuring.” The proposals include reforms to sovereign debt agreements, including strengthened collective action clauses and modification of pari passu clauses.

October 30, 2014—Argentina again defaults on its sovereign debt when it fails to make a coupon payment on $5.4 billion in bonds issued under foreign law, thus increasing the risk of acceleration and economic collapse. If the debt is accelerated, Argentina could be obligated to pay investors $30 billion immediately—$2 billion more than the South American nation holds in its national reserves.

December 23, 2014—The Second Circuit Court of Appeals upholds a lower court order directing Argentina and several banks to disclose information to holdout bondholders about the country’s assets, including diplomatic and military property, rejecting Argentina’s claims that sovereign immunity shields it from complying with such discovery requests under the Foreign Sovereign Immunities Act. 

December 29, 2014—The UN votes 128 to 16 to begin negotiations to create a global bankruptcy process. The legal framework is held out to prevent a global financial crisis, minimize sovereign debt defaults, and prevent predatory behavior. Sixteen nations vote against the resolution, including the U.S., Japan, Australia, and much of the European Union. Although these nations express support for improving debt restructuring and stopping predatory funds, they advocate the discussion of such measures not by the UN, but by the IMF or the Paris Club, an informal group of officials from creditor countries whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by debtor nations.

December 31, 2014—The “rights upon future offers” (“RUFO”) clause in indentures governing bonds that were not exchanged as part of Argentina’s 2005 and 2010 debt restructurings expires, paving the way for a potential settlement between Argentina and holdout bondholders. The RUFO clause prevented Argentina from settling with holdout bondholders on more favorable terms than those accepted by exchange bondholders in the debt restructurings. The clause could have triggered as much as $120 billion in new claims if the nation had settled with holdout bondholders prior to the clause’s expiration.

March 3, 2015—“Me too” holdout bondholders seeking compensation for debt owed by Argentina since the country’s 2002 default lodge claims with the U.S. District Court for the Southern District of New York for between $7 billion and $8 billion, in the hope of gaining from Argentina’s ongoing legal battle with holdout bondholders.

April 20, 2015—Argentina announces that, in an effort to evade U.S. restrictions on its market access, the country will issue $500 million of a new series of “BONAR 2024” bonds.

June 5, 2015—Judge Griesa grants partial summary judgment to the group of 526 “me too” plaintiffs in 36 separate lawsuits, finding that, consistent with his previous ruling in litigation commenced by holdout bondholders, Argentina violated the pari passu clause in bonds issued to the “me too” bondholders by refusing to make payments on their bonds at the same time that it paid holders of restructured debt. The decision obligates Argentina to pay the plaintiffs $5.4 billion before it can make payments on restructured debt.

December 10, 2015—Mauricio Macri succeeds Cristina Fernández de Kirchner as President of Argentina. President Macri pledges to return Argentina from credit markets exile and to make a fresh start by resolving disputes with holdout bondholders. By contrast, former President de Kirchner systematically refused to negotiate with the holdouts for eight years, characterizing them as “economic terrorists.”

February 2, 2016—Argentina announces that it has reached a $1.35 billion settlement with 50,000 Italian holdout bondholders.

February 5, 2016—Argentina announces that it has reached a $1.1 billion settlement with holdout bondholders EM Ltd. and Montreux Partners LP.

February 29, 2016—Argentina announces that it has reached a $4.6 billion settlement with NML, Aurelius, and other major holdout bondholders.

March 2, 2016—Judge Griesa enters an order conditionally dissolving his injunctions precluding Argentina from making payments on its restructured debt unless it also pays amounts owed to holdout bondholders. However, certain holdouts, including NML and Aurelius, appeal the order to the Second Circuit, contending that the ruling “rests on the erroneous premise that ‘changed circumstances’ necessary to warrant lifting the Injunctions exist solely on the basis of Argentina’s hope that it will pay some subset of creditors who agreed to terms under coercive conditions.”

March 16, 2016—Argentina’s Chamber of Deputies approves legislation to issue new debt and repeal the sovereign payment law and the “Lock Law,” which prohibits payments to bondholders other than holders of exchange bonds. The repeals would permit Argentina to consummate settlements it has reached with holdout bondholders.

March 30, 2016—Argentina’s Senate approves the repeal legislation. The law allows Argentina to issue $12 billion in bonds and use part of the proceeds to fund settlements with holdout bondholders.

April 13, 2016—The Second Circuit Court of Appeals affirms Judge Griesa’s ruling provisionally lifting the injunctions, paving the way for the South American country to begin funding $6 billion in settlements.

April 19, 2016—Argentina returns to the global capital markets, completing an oversubscribed, $16.5 billion bond issue that will enable the nation to pay outstanding creditors and fund economic priorities. The bond issue marks the largest debt deal ever for an emerging-markets country or company, eclipsing an $11 billion corporate bond issuance by Brazilian energy giant Petrobras in 2013.

April 22, 2016—Argentina pays holdout bondholders more than $6 billion. Judge Griesa confirms the payments and issues an order vacating his previous injunctions and allowing Argentina to resume servicing its exchange bonds.

The End?