Ballard Spahr litigation partners M. Norman Goldberger and Laura E. Krabill scored a rare bondholder enforcement victory on behalf of Capital Ventures International (CVI).

For nearly a decade, the government of Argentina avoided its responsibility to bondholders trying to recover losses stemming from the country’s $100 billion bond default. Although many bondholders have won judgments, few, if any, have been able to attach Argentine assets and maintain the attachments on appeal.

That changed in July 2011 when the U.S. Court of Appeals for the Second Circuit upheld CVI’s attachments on collateral (U.S. Treasury bonds) underlying more than $270 million in Argentine Brady bonds. The decision reversed the U.S. District Court for the Southern District of New York.

CVI originally sought the attachment of the Brady bond collateral in 2005, but its efforts were rejected by the district court. In 2006, the Second Circuit reversed, granting CVI the attachment. But in the meantime, Argentina had exchanged about $2.8 billion in Brady bonds (releasing the associated collateral) as part of a 2005 debt swap. In 2010, Argentina proposed a second Brady bond exchange. Under the terms of that transaction, Argentina would repay Brady bondholders with the collateral CVI had attached and new performing Argentine bonds.

To facilitate the deal, the district court vacated CVI’s attachment but stayed its ruling. CVI appealed, and the matter went back to the Second Circuit. The Second Circuit reversed again, holding that CVI was entitled to retain its attachment and that Argentina was prevented from circumventing the attachment to complete its proposed second exchange. As the court pointed out, Argentina can still complete an exchange and pay the Brady bondholders. If it does, however, at least for now, CVI will be able to seize the collateral corresponding to any exchanged bonds.