PARI PASSU: THAT IS THE QUESTION IN
SOVEREIGN BONDS AFTER THE LATEST
EPISODE OF THE ARGENTINE SAGA
Dr. Rodrigo Olivares-Caminal
“Justice is the crowning glory of the virtues.”
CICERO (106-43 BC)
“And maybe people who might consider lending money to the Republic
of Argentina in the future might realize what difficulties they’re going
to run into if they are na¨ıve enough to rely on what the Republic
offers.”
HON. THOMAS P. GRIESA1
I. INTRODUCTION
IT can be said that the pari passu clause mistakenly migrated from
secured private lending to unsecured sovereign lending.2 Once
rooted in unsecured sovereign lending instruments, it faced certain
provisions similar to those in Spain or the Philippines, which allowed a
creditor to better position itself vis- ´ a-vis other creditors,3 and become a
‘must have’ provision in this type of debt instrument. Then, pari passu
clauses stayed in unsecured debt instruments due to the fear of the
earmarking revenues, or the risk of the sovereign, preferring a group of
creditors over another.4 These two fears were tackled by an expanded
negative pledge clause and the Libra Bank Limited v. Banco Nacional de
Costa Rica S.A.5 and Allied Bank International v. Banco Credito Agr´ıcola
de Cartago6 cases. Therefore, if a proper due diligence was conducted;
there was no need to have a pari passu clause unless there was an exceptional
circumstance, like the ones of Spain or the Philippines. Unfortunately,
a misguided interpretation of the pari passu clause in the Elliot
Associates LP v. Banco de la Naci ´ on y Rep ´ ublica del Per ´u case7 opened
the door to litigation on incorrect grounds, which mainly focused on payment
interpretation or broad interpretation of the pari passu clause.8 It
was an ‘aberration’, but one that caused furor.9
http://studentorgs.law.smu.edu/getattachment/International-Law-Review-Association/Resources/LBRA-Archive/15-4/SMB402.pdf.aspx
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