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Hamilton-SL pre-trial fixed for 26 August

24 Jul 2022

  • To be heard at US District Court for Southern District of New York
  • Clifford Chance submits Notice of Appearance on behalf of Sri Lanka
  • Plaintiff HRB to be represented by Bleichmar Fonti & Auld LLP
By Shenal Fernando The action instituted in the United States District Court for the Southern District of New York against Sri Lanka by International Sovereign Bond (ISB) holder Hamilton Reserve Bank (HRB) has been fixed for pre-trial conference on 26 August 2022. According to public records published by the US District Court for the Southern District of New York, the initial pre-trial conference in case no. 1:22-cv-05199 between Hamilton Reserve Bank Ltd. and the Democratic Socialist Republic of Sri Lanka had been set for 26 August 2022 before Judge Denise L. Cote. Public records further revealed that Robert Houck, John Alexander, and Benjamin Berringer of Clifford Chance had submitted Notice of Appearance on behalf of Sri Lanka before the US District Court for the Southern District of New York on 15 July 2022. They further reveal that the Plaintiff Hamilton Reserve Bank will be represented by Bleichmar Fonti & Auld LLP. This action was instituted by HRB on 21 June 2022 before the US District Court for the Southern District of New York, on the ground of breach of contract due to Sri Lanka’s default on its ISBs due on 25 July 2022. HRB is seeking full payment of the principal and interest owed to it by Sri Lanka, amounting to $ 257.5 million. According to Hamilton Reserve Bank, Sri Lanka’s 12 April 2022 decision to temporarily halt its foreign debt servicing and its failure to make interest payments due on its 5.75% ISB expiring on 18 April 2023 and the 6.75% ISB expiring on 18 April 2028 amounted to a continuing and uncured ‘Events of Default,’ entitling it as the holder of not less than 25% in aggregate principal amount of the 25 July ISBs in terms of Article 5.1 of the 25 July ISB Indenture to declare that the full principal amount and accrued interest on the particular bond series was immediately due and payable. Hamilton Reserve Bank in its pleadings before the US District Court for the Southern District of New York, has claimed that it holds bonds with a principal amount of $ 250,190,000, which amounts to more than 25% of the aggregate principal amount of the 25 July 2022 bond series. Experts have revealed to The Sunday Morning Business that HRB has accumulated a blocking stake of $ 1 billion in the ISBs with a rate of 5.875%, due on 25 July 2022. Since the collective action clauses (CACs), the 25 July 2022 bond requires a supermajority of 75% to restructure the bond. HRB has the power to block the restructuring of that particular bond.  In its pleadings, Hamilton Reserve Bank has further claimed that Sri Lanka’s decision to not to restructure the Sri Lanka Development Bonds (SLDBs) amounts to a violation of the equal treatment (pari passu) provision contained in Article 3.1 of the Indenture of the July 2022 bond.  A pari passu clause is a clause found in sovereign debt instruments guaranteeing equal treatment of all bondholders and that bondholders are in the same ranking as other unsecured creditors. Article 3.1 of the Indenture of Sri Lanka’s July 2022 bond clearly provides that the bonds “will at all times rank pari passu among themselves in all respects, without any preference of one over the other by reason of priority of date of issue or otherwise, and will at all times rank at least equally with all other present and future unsecured and unsubordinated external indebtedness.” Accordingly, HRB has claimed that if the bondholders of Sri Lanka’s SLDBs are paid in full, a similar complete payout must be made to HRB in terms of the equal treatment (pari passu) clause. “Under the equal treatment provision, Sri Lanka cannot pay any bondholders – or pay any other external indebtedness (i.e., debt issued in any currency other than Sri Lanka’s) – without also making a ratable payment at the same time to Plaintiff.”  


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