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New York judge's ruling sparks nationalist surge in Argentina

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American entities are concerned as well. If Griesa’s ruling is upheld, it could throw a wrench into global bond markets, the New York Federal Reserve said earlier this month. For example, Greece reached a restructuring agreement with private bondholders last February to accept a 74-percent "haircut" – in other words, only getting 26 percent of their money back. But, some ask, if the Griesa ruling holds, who’s to say once-cooperative bondholders won’t raise their own suit, citing this ruling as precedent for why they deserve more?

University of Texas bankruptcy expert Jay Westbrook says the case’s major tension– and why it could easily wind up before the US Supreme Court – is that the sovereign-bond market is not equipped to handle this dispute. The introduction of collective-action clauses, which force bondholders to accept the terms of a majority-supported deal, were not introduced until the mid-2000s, long after Argentina and other countries had inked sovereign-debt contracts with investors like NML.

2005 restructuring

During the administration of former President Nestor Kirchner, who died in October 2010, Argentina reached its first restructuring agreement in 2005 with 76 percent of creditors, who agreed to a swap of the defaulted bonds for new bonds worth about 35 cents on the dollar.

It reopened the debt exchange in 2010 and won over all but 7 percent of remaining creditors, including NML and some Argentina and Italian individual bondholders.

“The thinking then was that Argentina would never go back to the external-debt markets,” says Sergio Berensztein, president of the Buenos Aires-based independent think tank Poliarquía, and thus did not need to worry about the holdouts.

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