The U.S. Supreme Court has rejected an appeal by Argentina in a long-running sovereign debt dispute, but the closely watched case is far from over.
The high court's decision, handed down Monday, upholds a 2012 ruling by a lower court obliging the South American republic to pay all its bondholders at once — including those that have refused offers to renegotiate the value of their holdings and instead brought suit seeking repayment.
Creditors who sued the nation, including two large hedge funds, hailed the decision as a victory. But Argentina is expected to file an appeal to the Supreme Court on a separate ruling in the same case, which would further delay a final resolution.
"This is a border skirmish that was won by the plaintiffs, but has little bearing on the bigger case," said Mark Weidemaier, a law professor at the University of North Carolina specializing in international dispute resolution. He believes that the fight could drag on for as long as 18 more months.
The deadlock dates to Argentina's record default, in late 2001, on nearly $100 billion in debt. That failure provoked years of political and economic chaos in the country, which to this day is cut off from international capital markets and struggles with inflation and other woes.
Eventually, Argentina was able to restructure most of the defaulted debt, swapping more than 92% of it for securities worth about a third of the original value. A small group held out, however, insisting on receiving face value.
Many of those holdouts, led by Elliott Management and Aurelius Capital Management, sued Argentina in various jurisdictions in pursuit of that goal. Late last year they tried — and ultimately failed — to take possession of a 300-foot Argentine navy vessel docked in Ghana as a way to recover value on their investment.
They found more favorable results in U.S. District Court in New York, where a federal judge found in rulings in 2011 and 2012 that Argentina violated its debt contracts and must pay more than $1.4 billion to the plaintiffs if it wishes to continue paying the bondholders who accepted the debt swaps and thus avoid another default.
Both those rulings were upheld in the U.S. 2nd Circuit Court of Appeals in New York, and Monday's decision by the Supreme Court leaves one of those cases intact. Argentina has asked the full circuit court to review the other ruling and said it would turn to the Supreme Court if that approach fails. That could easily take the case into late 2014, Weidemaier said. Argentina filed its first request to the Supreme Court in June.
"We are gratified by the Supreme Court's decision to deny Argentina's petition," Ted Olson, the lead attorney for the plaintiffs, said Monday. "Argentina's representatives have asserted that it will file another petition, but the facts of the case and Argentina's disregard for the rule of law remain the same."
Argentina's leaders have argued that the rulings could have a devastating effect on the country's economy.
Although Argentina has enough cash to pay the $1.4 billion at stake in the immediate matter, its leaders worry that the precedent could encourage countless other creditors — including many that already accepted lower-valued bonds in exchange for defaulted notes — to sue as well, demanding 100 cents on the dollar.
That could cost the country considerably more. As a result, it has repeatedly insisted that it will never pay the holdouts a penny more than that paid to other bondholders, and has questioned the authority of U.S. courts to oblige sovereign nations to pay debts.
"As we have affirmed in multiple occasions, Argentina will continue to defend itself with all available legal resources," Adrian Cosentino, Argentina's finance minister, said Monday.
In late August, the country's president, Cristina Fernandez de Kirchner, said that if it fails to win in the U.S., it would open a new bond exchange, this time in Buenos Aires, as a way to skirt the reach of American courts. That prompted a ruling last week in federal district court warning that such an act would violate a court order.
Numerous outside interests, including the International Monetary Fund, the U.S. Treasury, France and charity groups that fight poverty, have voiced concerns about the case in recent months, coming out in support of Argentina's position.
Although the specifics of Argentina's dispute are exceptional because of the size of the default and the relative wealth of the country, these groups have argued that the rulings could whipsaw developing nations struggling to climb out from under crippling debt loads.
The effect of the U.S. court decisions, they say, could be to undermine the entire concept of sovereign debt restructuring, emboldening bondholders to refuse to negotiate and instead demand full repayment.
In particular, some claim, it could bolster the business model of hedge funds that buy distressed debt on the secondary market at deep discount and then litigate for maximum returns.
In addition to their legal efforts, Elliott and Aurelius have supported public relations efforts that have painted Argentina as a narco-state and a collaborator with Iran.
The dispute's latest surprise also came Monday, when it was announced that Argentina's president, Fernandez, would be having brain surgery to repair a subdural hematoma.
Fernandez, who has been a vociferous critic of the hedge funds, which she calls "vultures," temporarily ceded power to her vice president, Amado Boudou. She is expected to be sidelined for a month.
The fiery president managed to get in a last word, however, stating Friday that the "U.S. justice system is trying to force us into default."