• Hamilton Reserve Bank takes aggressive approach to litigation
• Sri Lanka seeks to dismiss lawsuit on dubious grounds

The ongoing legal battle between Hamilton Reserve Bank, Ltd. and the Democratic Socialist Republic of Sri Lanka over a defaulted 2022 bond has taken a new turn as the United States Government contemplates intervention in the case. 

Accordingly, Damian Williams, the US Attorney for the Southern District of New York, which holds jurisdiction over the New York law bonds in question, has addressed Judge Denise Cote regarding the matter.

In his letter to the court, Williams explained that the United States is actively evaluating the possibility of filing a Statement of Interest concerning Sri Lanka's motion to stay the litigation for six months while it engages in sovereign debt restructuring negotiations with its creditors. The U.S. government is authorized under 28 U.S.C. § 517 to attend to the interests of the United States in court cases. The decision to file a Statement of Interest involves coordination among Government agencies and approval from the U.S. Department of Justice, expected by October 2, 2023.

Hamilton Reserve Bank, based in St. Kitts in the Caribbean islands holds a $250 million stake in Sri Lanka's $1 billion 2022 bond, sufficient to obstruct a debt restructuring. The bank's aggressive approach to litigation has raised eyebrows, as it is relatively unusual for a "holdout" creditor to reveal itself through legal action before restructuring talks have commenced. The lawsuit concerning this bond, which lacks aggregation features, creates a window for private creditors to opt out of a bond workout.

Meanwhile, Sri Lanka seeks to have the case dismissed on dubious legal grounds. This aggressive approach may stem from the belief that a court judgment could provide additional protection against restructuring.

A judgment holder is typically not subject to the same restructuring techniques as other creditors. This means that if Hamilton Reserve Bank wins its lawsuit against Sri Lanka, it could make it more difficult for Sri Lanka to restructure its debt.

The outcome of this case is uncertain but if Hamilton Reserve Bank wins, it could set a precedent for other creditors in future debt restructurings. This could make it more difficult for debtors to restructure their debt in the future. 

However, if the US government intervenes, it could help to ensure that the restructuring process is fair to all parties involved.

Input from Bloomberg Law & Financial Times