The U.S. Supreme Court on Monday handed Argentina a pair of legal setbacks in cases stemming from its historic 2001 default, a major blow for the country in its lengthy battle with holdout creditors.
In one highly anticipated case, the justices rejected Argentina's request that the high court intervene in litigation with holdout hedge funds that had refused to accept the country's debt-restructuring offers.
The Supreme Court, without comment, left in place a lower-court ruling that said Argentina can't make payments on its restructured debt unless it also pays the holdouts.
In a second related case, the high court ruled that bank records about Argentina's international assets can be made available to one holdout creditor seeking to collect on court judgments stemming from the default.
Argentina is fighting over billions of dollars with the holdouts, which include Aurelius Capital Management and Elliott Management Corp. affiliate NML Capital Ltd. The country has blasted the hedge funds as "vultures" seeking to reap a financial windfall on debt they bought at deeply discounted prices.
Argentina had warned the Supreme Court that the lower-court ruling in the main case left it facing the possibility of a new, court-ordered default, "which could trigger a renewed economic catastrophe with severe consequences for millions of ordinary Argentine citizens."
The country also said the rulings threatened international credit markets and impeded the debt-restructuring process.
In the wake of the ruling, Argentina's 2033 dollar bonds issued under New York law were trading at about 74 cents on the dollar from around 82 cents on Friday to yield 11.61%, according to Reuters. The bond is trading at its lowest price since March.
The hedge funds had urged the court to reject Argentina's appeal, saying the country had far overstated the financial impact of the case and has the money to pay up. They also said the Argentine government has a history of mistreating creditors and didn't deserve Supreme Court review because it will disobey the U.S. court rulings if it ultimately loses.
Argentina defaulted on about $100 billion of its debt during its financial crisis. The country in 2005 and 2010 offered holders of the defaulted bonds new heavily discounted debt in exchange. Between the two swaps, investors agreed to exchange about 93% of the defaulted bonds.
A New York federal trial judge and the Second U.S. Court of Appeals each ruled that Argentina's refusal to pay the holdouts while paying on the newer debt violated a so-called equal-treatment promise the country made on the older bonds.
The Second Circuit rejected Argentina's "blanket assertion" that a ruling against the country would plunge it into a new economic crisis.
The Supreme Court refused to disturb those rulings, saying in a brief written order that it wouldn't consider Argentina's appeal.
In the related bank-records case Monday, the Supreme Court sided with NML Capital, which had served subpoenas on Bank of America Corp. and Banco de la Nación Argentina, seeking records on bank accounts maintained by Argentina. NML said it wanted the records to learn how Argentina moves its assets around the world and to aid its attempt to collect on its judgments.
Argentina was seeking to shut down NML's discovery campaign on immunity grounds because it is a sovereign foreign state.
The Supreme Court, in the 7-1 ruling, affirmed a lower-court ruling allowing the subpoenas.
Justice Antonin Scalia, writing for the majority, said legal rules allow creditors to seek information on a debtor in order to collect on judgments.
