Default: The Landmark Court Battle over Argentina's $100 Billion Debt Restructuring

by Gregory Makoff

The meaning of the Latin phrase “pari passu” was the crux of the matter. In English, it translates as “in equal step,” which Elliott took to mean equal payment in its argument to the Belgian court. In other words, whenever Peru made a payment to any of its bondholders, it would have to pay all its bondholders any amounts that were due, regardless of whether they had accepted a restructuring deal or held out. By this logic, if Peru made a payment on its performing Brady bonds, it would also be obliged to pay any amounts due on the defaulted Peruvian loans Elliott held. As the firm’s expert witness, New York University professor Andreas Lowenfeld, told the court, “A borrower from Tom, Dick, and Harry can’t say ‘I will pay Tom and Dick in full, and if there is anything left over I’ll pay Harry.’ If there is not enough money to go around, the borrower faced with a pari passu provision must pay all three of them on the same basis.”56 The genius of Elliott’s pari passu argument was that it linked the equal payments interpretation of the clause to the demand for a blockade on Peru’s payments to its Brady bond holders. If the court accepted the equal payments interpretation, they would be almost obliged to impose the blockade to prevent further selective nonpayment of holdout creditors. The legal scholars countered that pari passu was about equal ranking, not equal payment, and so the blockade remedy was not justified.