The reach of US law & Bond covenants

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Firms Involved

  • Elliott Capital Management
  • Argentinian Government

Year of the event


Description of the case

Argentina issued FRANs (Floating Rate Accrual Notes) in 1998, due 2005, the yield of which was indexed on those of other Argentinian bonds[1]. The goal was to provide some sort of insurance to bondholders if the credit of Argentina deteriorated. In 2001 Argentina defaulted on its bonds. This excluded the FRANs, which kept on accruing huge interest (100% per year). Argentina did not pay and returned to capital markets a few years after the default. However, Paul Singer’s Eliott Management sued to enforce the “pari passu” clause of the bonds, stating that pre-2001 bondholders were to be treated equally to post-2005 bonds. The US Judge Griesa agreed with Singer and forced Argentina to first settle with the FRANs holders before it could pay anything to post-2005 bondholders. After a few years of dispute and negotiation, Argentina ended up paying close to 400% of face value to the last holders of FRANs in April 2016[2]


  • The covenants and contractual details of a bond are paramount and can make the difference between profit and loss, sometimes spectacularly.
  • The reach of the US is formidable, thanks to the implication of US intermediaries in most international transactions.


  1. Bloomberg, Argentina's Bond Fight Comes Down to Its Worst Bonds
  2. Dealbook, How Argentina Settled a Billion-Dollar Debt Dispute With Hedge Funds