Griesa applied the pari passu clause to accept this complaint, which finds that the balances that the holdouts claim have the same rights and obligations as other creditors, despite their acceptance of the terms dictated by the government in the 2005 and 2010 swaps, while the litigants did not.

La Nacion

Concern over debt case

Friday, July 13, 2012

By Martin Kanenguiser

The government is waiting with concern for the next step in the case that the vulture funds won in the first round and which could cause a virtual rupture with the bondholders that accepted the two swaps to exit the default.

If it is not postponed, on Wednesday the 18th a hearing before the Court of Appeals in New York will listen to the arguments of Argentina, the bondholders and the U.S. government around this case related to the pari passu clause.

In the lower court decision, Judge Thomas Griesa ruled against the government and official sources acknowledged to LA NACION that it “is very complicated” to anticipate a favorable final decision.

"When a case gets to this level, it’s a Pandora’s box,” explained a qualified official source, worried over the news sent by the law firm that represents Argentina in New York, Cleary, Gottlieb, Steen & Hamilton.

 

An attorney connected to the case told LA NACION that “the chances are 50% for the government and 50% for the bondholders.”

Finance Secretary Adrián Cosentino admitted some time ago that “it’s a long process, because the Appeals Court is taking a long time and then there is another round.”

If Griesa’s decision is upheld, as his latest rulings have reflected his exhaustion over the lack of resolution of the conflict between Argentina and its creditors after more than 10 years of judicial sparring, the government couldn’t pay the bondholders that accepted the swaps without facing attachments.

This is because the funds Dart and Elliott managed to get Griesa to back the idea that they should collect just like the rest of the creditors and, as such, if the Appeals Court upholders the decision, the government will have to proportionally pay them part of what they pay the rest in each maturity payment. The judge also blamed the banks that participated in the swap and who distribute the dollars from Argentina in the United States, so the fear of an unfavorable outcome is not only coming from the government.

Griesa applied the pari passu clause to accept this complaint, which finds that the balances that the holdouts claim have the same rights and obligations as other creditors, despite their acceptance of the terms dictated by the government in the 2005 and 2010 swaps, while the litigants did not.

 

The official source said that “there is much jurisprudence that backs what the government of the United States said” in a brief filed in favor of Argentina, not only for this case but in order to avoid having the vulture funds boycott other sovereign restructuring operations. In its brief to the court, using an amicus curiae, the government of Barack Obama admitted “an almost universal consternation by the financial markets” from the decision to apply the pari passu clause.

At the Palacio de Hacienda they breathed a sigh of relief for this brief, but the bondholders have also gotten strong support from various American lobbies who have key influence in an election year.

Ambassador Jorge Argüello launched a complex strategy to confront this pressure on American public opinion. But among the officials at the departments of Treasury and State, a strong skepticism prevails over the lack of agreement with Argentina on other debts, like that with the Paris Club and the favorable decisions for companies of that country in the arbitration tribunals of the World Bank.

If the appeals court upholds the vulture funds’ claims, according to attorneys that participated in the swap, Argentina will not be able to pay service on the debt coming out of either swap if it doesn’t also pay the more rebellious bondholders.

Thus, they said, the government will have to pay out the bonds at the Caja de Valores in Buenos Aires in order to avoid any possibility of attachments, with the consequent harm for creditors that began to collect in 2005 and 2010, respectively. “An unfavorable decision will bring us to having to be very

 

Thus, they said, the government will have to pay out the bonds at the Caja de Valores in Buenos Aires in order to avoid any possibility of attachments, with the consequent harm for creditors that began to collect in 2005 and 2010, respectively. “An unfavorable decision will bring us to having to be very careful in paying service on the debt,” said the source.

The official said that “to uphold a decision like that would complicate all the restructuring processes in course or that could take place in Europe in the future, in a scenario in which one needs calm.” The case moves forward while international investors have come through the Palacio de Hacienda this week to see if Argentina is going back to the markets. The response was sharp: “The President doesn’t want to.”