El Cronista Diego Ferro: “It’s very hard to see the holdouts not collecting what they are demanding in the end”

Debt Coverage:

 

La Nacion: “Advice is to give payment options to bondholders in default”

 

El Cronista:  “Diego Ferro: ‘it’s very hard to see the holdouts not collecting what they are demanding in the end”

 

·         El Cronista and AF report that Argentine bond prices continue to get hammered as more investors are advised to sell their holdings.  Argentina’s CDS prices hit a four-year high.   The Merval fell 2% with a very low trading volume.

 

Global Relations:

 

·         Clarin and La Nacion report that the first Argentina-Iran meeting occurred in Geneva yesterday with no word on what was said or the outcome.  The delegations met for an hour.  La Nacion reports that the Jewish community leadership in Buenos Aires is “reconsidering its ties” to the Kirchner government over the dialogue with Iran.  “The way to make progress in the search for justice is not to negotiate with those suspected and accused of attacking our country,” said Sergio Widder of the local Wiesenthal Center.

 

Argentine Society:

 

·         The union action that blocked the exit of Clarin and La Nacion editions from the printing plants yesterday was condemned roundly by opposition leaders, ADEPA and IAPA.  Clarin quotes a leader of the union behind the action as saying that “we know that the government is with us on this.”

·         Mariano Obarrio reports in La Nacion that the young organizers of the 8-N protests are working on ways to avoid “infiltration” and “dirty operations” by government supporters to undermine them.  Furthermore they are working to keep the movement without a face or notable leader: “The strategy is that the government not have someone to target with dirty campaigns,” where the Casa Rosada would ‘construct a leader .. to have someone to confront.’”  They are also counseling the participants that, at any sign of violence from inside the crowd, to all sit on the ground immediately in order to isolate the infiltrators.

 

JORGE ARGUELLO on Twitter and Blog:

 

·         He tweeted that the embassy was closed due to the hurricane, and re-tweeted some old items about the Jimmy Carter meeting.

 

TRENDING TOPICS/ARGENTINA on Twitter:

 

·         No political topics this morning in the top 10.

 

La Nacion

Advice is to give payment options to bondholders in default

 

Tuesday, October 30, 2012

 

By Martin Kanenguiser

 

The ruling from the U.S. Court of Appeals obliges the government to adopt a decision in the short term, be it to reopen the debt swap, pay the bonds in the country or enter into another default if it keeps to its rhetoric of “no negotiation” with the more aggressive creditors.

 

Experts consulted by LA NACION indicated that if the government wants to avoid a biggest problem, it will have to put forth a concrete solution to the American judges that have in their hands the resolution of Argentina’s pending debt waiting for payment since 2001.  If not, with the firm ruling, they could attach their payments abroad.

 

Despite that some official sources speculated on the possibility of delaying a decision, the ruling from the judges indicates that once Judge Thomas Griesa explains how Argentina must pay and what responsibility the banks have which make the payments in the name of the country, the sentence will be executed.  “Once the district court has taken these procedures, the mandate automatically returns to this court for greater consideration of the merits of the remedy, without the need for any notice of appeal,” said the judges in the decision.

 

There they ruled that Argentina violated the “pari passu” clause – which ensures equality among creditors – by discriminating against the holdouts, both the small investors and the vulture funds, by not paying them in a proportional manner and prioritizing, in turn, those that did accept the swaps of 2005 and 2010.

 

The possibility of reopening the debt swap, mentioned yesterday by the newspaper El Cronista, doesn’t seem to be in sync with the letter of the ruling.

 

"Argentina repeatedly expressed its frustration with the plaintiffs for not accepting the offers, but these were completely within their rights to reject a proposal of giving them 25 cents on the dollar.  And since the bonds do not contain any class action clause, Argentina doesn’t have the right to force them to accept a restructuring, even if it was approved by a supermajority,” the judges said.

 

Beyond the speculations, ex-Finance Secretary Daniel Marx said that “to reopen the swap and suspend the lock law would leave the creditors without an argument before the judges with respect to the country’s good will to solve the problem of pari passu.”

 

In turn, attorney Pablo Giancaterino, representative of small bondholders, said that “the solution is to sit with the lawyers, before the judge, and agree on payment, because the swap will not solve the problem and only will benefit the speculators.”  “The key thing to understand in Friday’s decision is that the U.S. judiciary wants a concrete solution, that the Argentine government didn’t contribute one.  While the local legal culture points to delays, for the Saxons it’s the opposite,” Giancaterino explained.

 

For this reason, he said that “possibly when the Court of Appeals saw that in the case of the Frigate Libertad Argentina decided not to pay a bail bond that could have been negotiated to US$8 million, it understood that the strategy is to delay and not settle, harming the country.”  The attorney said that if the government wanted to punish the vulture funds beyond mere words, “it will have to push the case that is with Judge Norberto Oyarbide, which denounced speculative maneuvers in the 2010 swap,” from a filing from leaders Claudio Lozano and Mario Cafiero.

 

Another attorney also said that “to reopen the swap would serve little purpose” after the ruling, but an analyst at an investment bank said that “this is the time to put it forth to President Cristina Kirchner, because before this there was no margin for it.”

 

But in the government they said to LA NACION that there is no space to reopen the swap as a signal of negotiation with the bondholders, by which the only option open is to pay those who accepted the swaps in Argentina if going to the U.S. Supreme Court fails.  The last resort would be to enter into default for reasons of “force majeure”.

 

 

El Cronista

Diego Ferro: “It’s very hard to see the holdouts not collecting what they are demanding in the end”

 

Tuesday, October 30, 2012

 

By Leandro Gabin

 

Greylock Capital Management is a high-risk fund that has precedents with Argentina.  Led by Hans Humes, this fund that had defaulted Argentine bonds, then entered into the second swap launched in 2010 after resisting in 2005.  Humes even led a bondholder committee that had local debt bonds.  Within the inner circle of this fund, which also led the recent debt swap with Greece, works Argentine Diego Ferro. Currently he is one of three partners in the firm together with Humes and also acts as portfolio manager.  Greylock manages US$500 million in distressed, high-yield debt from emerging markets.  In an interview with El Cronista, Ferro said that the government will try to buy time (appealing) or will seek a way to avoid paying the creditors that won the US decision.  He says that if the country wants to rejoin the capital markets, it will eventually have to settle with the funds.  But in the short term he is not pessimistic over the performing debt (which is being regularly paid) and even believes that one should buy the bonds at these prices.  “I don’t see this government not honoring the debt,” he says.

 

The market, perhaps the Argentine government, believed that the Court of Appeals would rule in the country’s favor.  Did it underestimate the power of the holdouts?

I don’t believe that the market had this issue as a one of its main concerns when evaluating Argentine risk (pesification, currency clamp, soy prices, international context are more relevant for the majority of operators).  This is a complex issue, that few expect to be clearly resolved in favor of one side or the other in the short term.  It’s clear that the government expected a ruling in its favor, but for those that pay more attention to the process they can see that the tone from Judge Griesa was more firm, and the arguments used by the holdouts (pari passu) were very creative to be able to get a favorable ruling.  We are not surprised by the ruling (perhaps yes in how much in favor of the holdouts it was); but the somewhat unmeasured reaction of the markets surprised us.

 

Is there a danger that the government will enter into a technical default?  Or do you believe that the government’s appeal could reach the Supreme Court, something many dismiss?

I don’t think that the government wants to enter into a technical default, and its strategy from the start has been to try to delay the legal process and put resources into making the holdouts tire of waiting to collect.  The problem is that the holdouts in this case are professional groups that are accustomed to these tactics and know how to carry on the battle for a long time.  Even if it goes to the Supreme Court, due to the tone of the ruling from the appellate court it would be a bit surprising if it sided with the Argentine government.  But that court could have the government win in one or two years, something consistent with its strategy since the beginning (designed by their legal advisors, Cleary). 

 

Do you believe that the government should reset its strategy and present a payment plan to these creditors?

By having obtained rulings in the lower and higher courts it’s very hard to see these funds not collecting at some moment by the measure that the country wants to fully re-enter the international capital markets.  It’s been a while that Argentina has been financing itself with internal resources (ANSeS, Central Bank), and thus could ignore the decisions.  The last one complicates payments, but the country could continue putting its resources in and delaying the hour of compliance.  It can also try to design forms of payment or emission without going through the U.S.  But eventually Argentina will have to resolve the fact that a federal courtroom in New York has decided that it owes a big amount to a group of investors.  That doesn’t disappear with time and it has economic value.

 

Wouldn’t it be unfair for other bondholders that did accept the debt swap in 2005 or in 2010?

Argentina made a restructuring offer that was unilateral and quite aggressive (we could justify the strategy due to the 2001 crisis, but it could have been consensual instead of unilateral).  Many people accepted, and since then they received payments on time as promised by Argentina in 2005.  More people joined the swap in 2010.  Nobody obliged those people to accept those offers; some didn’t, went to a judge and argued that Argentina had promised to return the original value and submitted itself to New York law; and Judge Griesa agreed.  These investors have not received anything since the swap, and has been spending cash on attorneys to defend their case.  It doesn’t seem to be an issue of fairness or not to me, it’s an issue of different strategies to deal with the fact that Argentina decided not to pay its foreign debt at the end of 2001.

 

Both Judge Griesa as well as the plaintiff attorneys say that the country could pay from having US$45 billion in reserves.  Do you agree with this reading?

The issue of the holdouts is more a political issue than economic.  It’s not only an amount that it could pay, but that by resolving this issue one could expect a reduction in country-risk since Argentina would have no legal barriers to emitting debt in the US market as any other emitter from the region (Bolivia, for example, issued at under 5% in dollars for some years).

 

How do you think this will be resolved? Will Argentina settle with the funds by paying what they ask or do you believe that it will kick the board and try to dodge the payments?

I think that Argentina will continue trying delay the legal process, and if it cannot perhaps try to make payments through a safe jurisdiction that is not within reach of Griesa’s courtroom.  I don’t see this government not honoring its external obligations, because it was always very clear that this would be one of its priorities.  Personally I think that the sooner this issue (and the Paris Club) the easier it will be to rejoin the international financial system (something that would be good for the country, which seems to be needing cash due to its recent currency policies).

 

You have performing Argentine debt in your portfolio.  What is your recommendation to investors in this situation?

Yes, we have bonds, and we don’t believe that in the short term the government will do anything to put the next few months’ payments in danger.  For that it seems to us that the drop in prices represented an opportunity for increasing positions, and we will not sell at these prices