Holdout creditors and the pari passu clause
Creditors who refuse to take part in a sovereign debt restructuring in order to obtain full payment through the courts, often relying on the equal ranking clause.
When a country offers a debt exchange at a haircut, each creditor is better off if the others accept while it stays out and claims the full amount. Specialized funds therefore buy defaulted bonds cheaply and sue in the courts of the bonds' governing law, New York or London. The pari passu clause, which promises that the debt will rank equally with other external debt, was long read as boilerplate with no real effect. A US court reading turned it into a ratable payment obligation: the country can no longer pay creditors who accepted the exchange without also paying those who refused it. That reading let holdouts block the payment flows themselves, and it explains the spread of aggregated collective action clauses.
After Argentina's December 2001 default, NML Capital refused the 2005 and 2010 exchanges. In 2012, Judge Thomas Griesa in New York barred Argentina from paying restructured bondholders without paying NML; after the Supreme Court declined to hear the case in June 2014, the country defaulted again on July 30, 2014. Argentina paid about 9.3 billion dollars to holdout creditors in April 2016.
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