A key hearing is coming on debt claims

Clarin

A key hearing is coming on debt claims

Sunday, June 17, 2012

By Ana Baron

U.S. judiciary decides if the bondholders have to be paid outside the swap.

“Tango” A parody of Cristina and Hugo Chavez by the U.S. bondholders

In Times Square. Signs up on the traditional New York street with complaints from the vulture funds against Argentina, last Friday.

The vulture funds welcomed Cristina Kirchner in New York – the President leaves the city this afternoon – with an enormous sign placed in the heart of Times Square where she was seen dancing the tango and whose main message was that Argentina should be expelled from the G-20.

 

All the experts consulted by Clarin said that no member country of the G-20 is thinking of taking away Argentina’s membership. The vulture funds will fail in their campaign to achieve this goal. But nobody rules out, however, that they could have more success next Wednesday during a hearing in the Court of Appeals that will be key.

What is in play is a ruling by Judge Griesa from April that found that when the Argentine government makes the next payment to the bondholders that entered the swap, they’ll have to share the payment with the vulture funds.

Argentina appealed this ruling. But if the court doesn’t reverse it, the two swaps held by the government could be thrown out of joint.

According to Griesa’s ruling, those charged with making the payment to bondholders that entered the swap and the vulture funds will be the international banks that normally pay the installments. And if for example Deutsche Bank refuses to split the money with the vulture funds, they could be sued.

The White House sent a letter to the Appeals court supporting Argentina’s position, saying that if this ruling is not reversed “one creditor alone could unravel the instrumentation of a plan to restructure debt that has international support,” and that would harm “U.S. foreign policy interests.”

 

Experts believe that the court’s decision will be key because it will set a precedent. In April, Judge Griesa decided that the vulture funds should get 50% of the payments that the Argentine government gives to the bondholders that entered the swap. Griesa interpreted the pari passu clause that the Argentine bond contracts contain as equivalent to the so-called “sharing clause” that determines that all have to share payments.

During a hearing of the Congress’ Financial Services Committee, Ted Olsen, attorney for one of the vulture funds, NML, unveiled the strategy that will be on display during the court hearing. In his presentation, Olsen strongly criticized the White House for having sent a letter in support of Argentina’s position. He argued that the Obama government cannot help a country that doesn’t pay its debts nor respects rulings of U.S. and international courts.

So things will be tense during Wednesday’s hearing. What is in play is not only a legal principle but the relative strength between Argentina and the vulture funds.