Sovereign credit default swaps are on the brink of a fresh controversy following claims by Argentina that it has met its obligations on restructured bonds by depositing US$1bn with trustees to cover a coupon payment due on June 30. But an exceptional clause included in the documentation for the so-called exchange bonds suggests that the sovereign's actions are unlikely to avoid triggering a CDS auction if bondholders remain unpaid. An order from New York judge Thomas Griesa relating to litigation from holdout creditors that refused to take part in bond exchanges in 2005 and 2010 extends to all third parties involved in payment flow for the bonds, ensuring that funds cannot be passed down the chain unless holdout creditors are repaid in full.
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