Definition of pari passu

Pari passu is a Latin phrase used in legal terminology to mean equal footing. 


pari passu in the news

The term pari passu appeared frequently in the news from 2012 as creditors awaited the latest twist in the Argentine bond saga. Argentina defaulted on nearly $100bn of its bonds in 2001 and agreed restructuring terms (which involved haircuts of between 45 per cent and 75 per cent) with over 90 per cent of its creditors. The remaining creditors held out for full payment and were joined by some opportunistic investors, including hedge funds, that bought the bonds at extremely low prices with the aim of also holding out for full payment. In 2012, hold-out creditors led by a fund called Elliott won a favourable judgement from a New York judge  who acccepted that the principle of pari passu should apply and ruled that hold-out creditors' bonds should be treated the same was as those of holders of the restructured debt. Holders of the original bonds and the so-called exchange bonds would each therefore be entitled to the same ratable payments. This meant that if Argentina intended to repay exchange bond holders in full it would also have to repay the hold-outs in full. If, however, it intended to pay the hold-outs only a percentage then the same percentage payment would be due to the exchange bond holders. The ruling therefore raised the possibility that Argentina would default on its debt again and have to seek restructuring of its exchange bonds. Argentina has strongly rejected the idea that it should pay a penny to the hold-outs. At the end of February 2013 parties were awaiting a decision on Argentina's appeal against the judgement. 

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