Argentine Law Changed Payment Jurisdiction and Restructuring of the Argentine Public Debt

On September 12, 2014 Argentine Law No. 26.98 was published in the Official Gazette. This Law was referred to as “Sovereign Payment and Public Debt Restructuring Law” (the “Law”), which was proposed by the Executive Power in order to attempt to regularize certain payments to bondholders whose restructured debt was prevented by a US Justice ruling that determined Argentina should previously reach an agreement with those creditor who had not apply to the previous debt restructuring offers (2005-2010) relating to the 2001 Argentine default (the “holdouts”).

In August 2014 the Executive Power announced the filing of the bill for the total payment to bondholders who accepted the previous restructurings (2005 and 2010) (“Restructured Titles”) bearing in mind such payments had been partially blocked by the judgment raised from the court case between Argentina and the Holdouts. Moreover, beyond safeguarding the rights of the respective creditors, this bill added that it “attempted to protect national sovereignty and public order immunities which would be affected by that ruling”.

In short, the law provides the following:

• In relation to the Restructured Titles: These creditors will be able to obtain payment under the Argentine jurisdiction, preventing the risk of future seizures by foreign judgments. Following this, the law enables the Executive Branch to remove Bank of New York Mellon (BONY) as trustee, appointing instead the company that manages the National Bank of Argentina’s trusts: “Nación Fideicomisos S.A.”. However, the bondholders keep their right to select another agent to guarantee their payment. In order to ensure bondholders payment, the Law creates a special account at the Central Bank of Argentina (“BCRA”) for the exclusive deposit and payment of the creditors. The exchange deposited in it must be used for the cancellation of their restructured titles up to the date of payment, being available to its creditors. Restructures Bondholders will be able to select that payments occur under local Argentine law or under French legislation.

• In relation to the holdouts: The Law provides the Holdouts with the possibility to finally restructure their credits under the terms of 2010 restructuring. In order to enable payment of their claims, a special account on the name of Nación Fideicomisos S.A. will be created. In that account the exchange that shall be deposited is the equivalent to the sum that should have been paid to the Holdouts as if they had accepted the last restructuring in 2010. The sums will be available in case the holdouts decide to restructure their credits.

The Law extended the concept of the original bill and declares Argentine sovereignty immunity against judgments, including a number of Argentine State assets such as: Central Bank’s accounts and other accounts linked to the civil service; public property; property intended or relating to military or military control or defence agency of Argentina; cultural objects that are part of its heritage; other property that is protected by any law of sovereign immunity; etc. (Section 7).

Another disposition included in the new legislation is the creation of the Permanent Bicameral Commission of Investigation about Origins and Management of Argentine Foreign Debt. This entity will consist of eight (8) Senators and eight (8) deputy members, appointed by the Chairmen of the Houses of Congress on the proposal of parliamentary sectors respecting the proportion of political representations in the national legislature. The Law also mentions some of the commission functions such as monitoring and management of payments of foreign debt; research on the origin, evolution and current state of the national external debt from March 24, 1976; investigation of the legality or illegality of government bonds acquired by foreign holders. (Section 12).

The new Sovereign Debt Restructuring Law came into force on September 12, 2014.

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