“Contingent GDP-Linked Payments Are Not ‘Principal or Interest’”
Commentary on the Second Circuit’s Argentine GDP-Linked Securities Litigation Summary Order (2025)

1. Introduction

The Second Circuit’s summary order in Argentine GDP-Linked Securities Litigation, Nos. 24-1209(L) & cons. (July 16 2025), addresses a high-stakes dispute arising from Argentina’s groundbreaking 2005 and 2010 debt-restructuring instruments: GDP-linked securities (“GDPLSs”). The plaintiffs—hedge funds and other investors— claimed Argentina owed a payment for the 2013 reference year but had refused to honour it after revising its GDP methodology. The district court (Preska, J.) entered summary judgment for Argentina, finding the action barred by a “No-Action Clause.” On appeal, the investors pressed three theories to circumvent the clause, while Argentina alternately invoked the clause and raised forfeiture arguments.

Although issued as a summary order (hence non-precedential under 2d Cir. R. 32.1.1), the decision is the first federal appellate pronouncement to hold explicitly that contingent payments under GDPLSs do not constitute “principal” or “interest” and therefore fall outside the traditional carve-outs to No-Action Clauses common in sovereign debt indentures. The ruling clarifies drafting expectations for complex performance-linked sovereign instruments and bolsters the enforceability of trustee-notice requirements against sophisticated investors.

2. Summary of the Judgment

The Court of Appeals (Menashi & Nathan, JJ., Failla, D.J., sitting by designation) affirmed the district court on three main holdings:

1. Contingent GDPLS payments are neither “principal” nor “interest.” Accordingly, the plaintiffs could not invoke the Indenture’s Section 4.9 exception—which permits suits for unpaid principal or interest without first satisfying the notice-to-trustee steps.
2. No implied “third exception.” The wording in Section 11 of the Global Security (“with respect to the right … to enforce the payment of any amounts due hereunder on any Payment Date”) does not create an additional carve-out. Reading it otherwise would render the explicit cross-reference to Section 4.9 superfluous and contradictory.
3. No waiver/forfeiture of the No-Action defense. Even though Argentina raised the clause late, the issue is purely legal, was passed upon below, fully briefed, and thus appropriately considered on appeal.

Because the action was contractually barred, the panel declined to reach the substantive question whether Argentina’s GDP revisions breached the securities.

3. Detailed Analysis

3.1 Precedents Cited and Their Influence

• Seiden Assocs., Inc. v. ANC Holdings, Inc., 959 F.2d 425 (2d Cir. 1992) – invoked for the canon that a court must not “strain the contract language beyond its reasonable and ordinary meaning.” Here, it underpinned the rejection of plaintiffs’ expansive reading of Section 11.
• Bethlehem Steel Co. v. Turner Constr. Co., 2 N.Y.2d 456 (1957) – cited alongside Seiden for contract-construction principles under New York law (governing law in the Indenture).
• Procedural-waiver line of cases: Dean v. Blumenthal, 577 F.3d 60 (2d Cir. 2009); Sniado v. Bank Austria AG, 378 F.3d 210 (2d Cir. 2004); Cortlandt St. Recovery Corp. v. Hellas Telecomms., 790 F.3d 411 (2d Cir. 2015); Ruggiero v. Warner-Lambert Co., 424 F.3d 249 (2d Cir. 2005); United States v. Harrell, 268 F.3d 141 (2d Cir. 2001). Collectively, these authorities empowered the court to reach the No-Action issue notwithstanding Argentina’s tardy invocation.

The panel did not rely on earlier sovereign No-Action Clause cases (e.g., Fletcher v. Republic of Cyprus or Walsh v. Republic of Argentina), making this order the principal (albeit non-precedential) guidance specifically addressing performance-linked sovereign instruments.

3.2 Legal Reasoning

1. Textualism and Ordinary Meaning. Adopting unadorned dictionary definitions (Black’s, OED), the court held: • “Principal” = capital sum of debt; • “Interest” = compensation for use of money. Because GDPLS payouts depend entirely on economic performance, are not promised at issuance, and are not a calculable percentage of investor funds, they cannot be shoe-horned into either category. The first page of the Global Security expressly warns holders they are “not entitled” to receive principal or interest.
2. Structural Harmony. The Indenture governs multiple Argentine securities; the Global Security modifies those general terms for GDPLSs. Section 11’s “Except as provided in Section 4.9” signals incorporation, not expansion. Reading the italicised gloss as an independent exception would negate the cross-reference, offend New York’s rule against surplusage, and whisk away the bargained-for notice requirement.
3. Procedural Discretion on Waiver. Because the No-Action defense is purely legal, fully briefed, and previously addressed by the district court, the appellate court exercised its discretion to entertain it despite potential forfeiture.

3.3 Impact of the Judgment

Even without formal precedential status, the order is poised to exert substantial persuasive weight:

• Sovereign-Debt Drafting. Drafters of future performance-linked instruments (e.g., climate-indexed, commodity-indexed, or GDP-linked notes) will likely clarify whether contingent payouts qualify as “principal,” “interest,” or a third category subject to distinct enforcement mechanics.
• Investor Litigation Strategy. Hedge funds and distressed-debt investors will need to satisfy trustee-notice and holder-aggregation provisions before suing, even for exotic payment streams, or risk dismissal.
• Trustee Role Reinforced. The court underscores that collective-action machinery is not a “paper tiger” and will be enforced to prevent a minority of holders from racing to the courthouse.
• Potential to Shape Public-Policy Discussions. Policymakers debating “state-contingent debt instruments” can leverage the ruling to argue that enforceability concerns are manageable via conventional bond-law techniques.

4. Complex Concepts Simplified

• GDP-Linked Security (GDPLS): A bond-like instrument whose payouts rise when the issuer’s GDP surpasses specified thresholds, aligning investor returns with the issuer’s economic growth.
• No-Action Clause: A contractual provision requiring individual security holders to meet certain pre-litigation steps (e.g., notice to trustee, minimum holder aggregation) before bringing suit, designed to centralise enforcement and prevent fragmented litigation.
• Principal vs. Interest: “Principal” is the amount originally lent; “interest” is compensation for using that money. Contingent GDPLS payments hinge on economic performance and are not guaranteed, so they are different in nature.
• Summary Order: A form of Second Circuit disposition resolving an appeal without a full published opinion. Under Fed. R. App. P. 32.1 and local rules, it lacks formal precedential effect but may be cited for its persuasive value.
• Forfeiture vs. Waiver (Procedural): “Waiver” is the intentional relinquishment of a known right; “forfeiture” is the loss of a right through neglect. Appellate courts may overlook forfeiture in the interests of justice when the issue is purely legal and fully briefed.

5. Conclusion

The Second Circuit’s decision delivers three pivotal lessons:

1. Contingent performance-linked payouts—at least under the Argentine GDPLS language—are neither principal nor interest.
2. Courts will not conjure additional exceptions to carefully negotiated No-Action Clauses; textual precision matters.
3. Procedural defenses such as No-Action Clauses remain potent even if asserted late, particularly where the dispute hinges on pure contract interpretation.

By reaffirming orthodox contract-construction canons in the novel context of GDPLSs, the order harmonises innovative sovereign-finance products with legacy trust-indenture architecture. While technically non-precedential, its analytic clarity ensures it will influence drafting, litigation strategy, and academic debate surrounding state-contingent sovereign debt for years to come.