A Sri Lankan debt twist

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Earlier this year, occasional Alphaville contributors Mark Weidemaier and Mitu Gulati wrote about Hamilton Reserve Bank’s lawsuit against Sri Lanka over a defaulted 2022 bond. It turns out that the US government wants to intervene.

Damian Williams, the US Attorney for the Southern District of New York (which has jurisdiction over the NY law bonds) has sent a letter to judge Denise Cote, who is presiding over the case.

Alphaville’s emphasis below. Thanks to Mitu for alerting to us to this intriguing twist.

Dear Judge Cote:

I write to inform the Court of the United States of America’s potential participation in the above-captioned case. This case has been brought by Hamilton Reserve Bank, Ltd. against the Democratic Socialist Republic of Sri Lanka (“Sri Lanka”) seeking payment on $250,190,000 of defaulted sovereign bonds. ECF No. 23. Sri Lanka has filed a motion to stay the litigation for a period of six months while it conducts sovereign debt restructuring negotiations with sovereign and commercial creditors. ECF Nos. 53-55. Sri Lanka’s reply brief in support of its motion is currently due August 31, 2023. ECF No. 40.

The United States is actively considering whether to file a Statement of Interest with respect to the pending motion to stay. Pursuant to 28 U.S.C. § 517, the Attorney General of the United States is authorized to send any officer of the Department of Justice to “attend to the interests of the United States in a suit pending in a court of the United States, or in a court of a State, or to attend to any other interest of the United States.” The process for deciding whether to file a Statement of Interest involves coordination among interested government agencies and the approval of the U.S. Department of Justice through the Principal Deputy Assistant Attorney General for the Civil Division. The United States expects that it will be in a position to inform the Court of its potential participation in this matter, and to file its Statement of Interest should it be authorized to do so, no later than October 2, 2023.

The Government respectfully requests that the Court reserve decision on the pending motion to stay until the United States has had an opportunity to submit any such statement of interest.

I thank the Court for its consideration of this request.


United States Attorney

Southern District of New York

You can find the background to this case in Mark and Mitu’s previous Alphaville post here, but the tl;dr is that St Kitts-based Hamilton Bank has snagged a $250mn stake in Sri Lanka’s $1bn 2022 bond, which is enough to block a restructuring. Hamilton Bank has been unusually aggressive for a “holdout” creditor though, which Mark and Mitu think is because:

. . . A judgment holder is insulated from many of the most common restructuring techniques and may, while in its protected cocoon, still be able to interfere with the rest of the restructuring.

Seemingly the US objects to this. The letter also mentions in a footnote that the US government “understands that other official creditors may separately submit a filing reflecting their views”, but stresses that the SDNY is planning to “address the interest of the United States”.

This is fascinating, as at face value it is hard to see how and why the US government has an interest in Sri Lanka’s debt restructuring, or even grounds for making its views known to the court.

It could be a delaying tactic to help Sri Lanka engineer a debt restructuring, by sabotaging Hamilton Bank’s rush to the courthouse for a more restructuring-resistant judgment. We’ll be checking the docket more regularly to see what SDNY eventually says.

In the meantime, if you’re hungry for more on the subject, here are Mark and Mitu discussing the case on their delightfully nerdy podcast, Clauses & Controversies.

Read the full article here

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