2002 - Currency Inconvertibility / Argentina
Sovereign paid a currency inconvertibility claim on a syndicated loan made by a commercial bank to a large Argentine corporate. The loss occurred before the Berne Union exemption (see Claims Mitigation in Argentina) came into effect. When a scheduled payment came due on the loan, the borrower had sufficient local currency to make the payment, but, due to exchange controls, was unable to convert the pesos to dollars and remit the payment outside Argentina. The specific exchange controls were the Central Bank decrees requiring Central Bank approval for cross-border transfers to pay debt. For a lengthy period in 2002 and early 2003, such approvals were difficult, if not virtually impossible, to obtain.
Sovereign insured two commercial lenders on the loan. One filed a claim under its policy and the other chose instead to go along with a proposed restructuring of the loan. Sovereign paid the claim in full at the end of the waiting period and took a beneficial interest in the Insured’s interest in the loan (rather than title to the blocked pesos). The loan, as restructured, is performing and Sovereign, some two years after its claim payment, has (via its Insured) realized a full claim recovery. (see Client Letter)