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Donnerstag, 28. Februar 2013

At one point, a judge seemed thrilled to find out that Argentina was paying BNY's fees. In her view, this fact alone made BNY into Argentina's (constructive?) agent despite indenture language to the contrary, and hence "in active concert and participation."

At one point, a judge seemed thrilled to find out that Argentina was paying BNY's fees. In her view, this fact alone made BNY into Argentina's (constructive?) agent despite indenture language to the contrary, and hence "in active concert and participation."

No Food, No Phone, All Heat, Some Light: Dispatches from the Pari Passu Hearing (Updated to Reflect Rehearing Decision)

posted by Anna Gelpern
I am just back from joining 250+ other obsessed (and some paid) persons at the secondSecond Circuit hearing on the pari passu clause in NML v. Argentina. My first reaction on leaving the courtroom was that Argentina was done for, as was Bank of New York-Mellon, and by implication, the Exchange Bondholders. My second reaction (with the benefit of a glazed donut) was that some odd moments in the argument might point to a surprise outcome. My third reaction (with the benefit of coffee) was that my first reaction was right. More than you want to know below.
First, the atmospherics. The hearing took place 2-4:30 pm on Wednesday in the newly renovated courthouse (they just moved back in January), which may explain the confusion surrounding room size, access, overflow, press passes, communications, etc etc. By 10 am, quite a few folks were milling around the elevator bank adjoining the courtroom -- notably Argentine press. Word came down that Argentina's Vice President and Economy Minister would attend the hearing (true). Since all but a few journalists covering the courts had to check their phones at the front door, rumors spread the old-fashioned way, up and down the line, with people plotting to get in, get close, get the best sound, or get some fresh air. An hour before the doors opened, it became clear that not even all the lawyers for the bazillion parties who submitted briefs in the case would get into the 60-seat courtroom, and the two overflow rooms were overflowing.
Inside, the compressed argument schedule became something of a running joke. The judges seemed to encourage lawyers to go on for multiples of their time allotments. What started as a subdued and measured exchange (talking about the formula) got hot-hot-hot by rebuttal-time, with judges shaking their heads, rolling their eyes, and raising their voices, while the masses in the overflow rooms hooted and hollered at their favorite zingers.
Second, the substance. The panel was reviewing Judge Griesa's decision on remandfrom their October 26 ruling. They wanted to know (a) what ratable payment formula should apply in the injunction based on the pari passu clause in Argentina's defaulted bonds, and (b) how the injunction should apply to third parties.
General consensus going into the hearing was that Judge Griesa's formula would not be reopened, if only because it came straight from the contracts: everything owed NML (full principal+past due interest) should be paid alongside everything owed Exchange Bondholders (coupon). Any alternatives would have to be made up. That same consensus held that BNY stood some chance of escaping contempt sanctions for receiving funds from Argentina and distributing them to the bondholders. Wednesday's argument seemed to buck both parts of the consensus--to a point.
FormulaThe judges spent a surprisingly long time probing counsel (mostly Jonathan Blackman for Argentina, but also David Boies for the Exchange Bondholders) for plausible alternatives to the District Court formula. These seemed few. Argentina proposed giving everyone the same proportion of their old unrestructured principal on any given payment date, on the theory that it would approximate bankruptcy treatment.  On the other hand, the court was bothered (and one judge was immensely bothered) by the fact that Argentina's offer came so late in the game, and would not make up for missed paymends over the eleven years of default. When asked, Boies floated a few other formulas that took the eleven-year gap into account. The key point for Argentina, implicitly endorsed by the Second Circuit in remanding the question earlier, is that there must be a difference between "payment obligaitons" (everything due, uncontested) and "ratable payment obligations" (some proportion of everything due, very contested). Even so, I did not get the sense that any of the new formulas was a keeper. The fact that the court took up so much of its time with the question made me think that maybe the judges had come looking for more decision options, but did not get them. Or maybe not.
Third PartiesBNY's argument that it was a passive vessel receiving funds from Argentina for the bondholders, and that notice alone was not enough to support a contempt sanction, seemed to fall flat. The judges said at one point that it would have been "reckless" for lawyers to advise BNY to go forward with a payment even if it were not named in Judge Griesa's order. Weirdly, the judges just do not seem to buy the idea that Trustees represent bondholders, not issuers. At one point, a judge seemed thrilled to find out that Argentina was paying BNY's fees. In her view, this fact alone made BNY into Argentina's (constructive?) agent despite indenture language to the contrary, and hence "in active concert and participation." On the other hand, BNY's lawyers cited oodles of case law saying that the proposed sanction would be inappropriate, while counsel for NML did not counter any of it directly. They again, NML also relied on amicito make this counter-argument in their briefs.
The Exchange Bondholders' argument was essentially all about BNY, with a smattering of the Constitution. David Boies did try to frame the constitutional takings point for Supreme Court review (the court took our contracts for the sake of other people's contracts). There was a related exchange between Boies and the court on whether the old and the new contracts were effectively linked through the pari passu clause, or totally independent (Boies), and whether paying the Exchange Bondholders without also paying NML et al. would amont to granting new debt priority over old debt. 
However, the main objective of David Boies' argument seemed to be to free up the payment chain so the money could flow to his clients, which brought it back to BNY. When Ted Olson for NML conceded that merely receiving money from Argentina would not put the bondholders themselves in contempt, Boies seized on the concession to hammer home the fact that "THEY [BNY] are US." His repeated plea was to spare "us and our trustee". The whole thing was a bit surreal, since everyone seemed to agree that there was no way for Argentina's money to reach the beneficial holders without either BNY or another intermediary, and/or rerouting the payments in violation of the injunction. But if anyone wants to get paid, the eye of the needle is all yours.
From the entire discussion about third parties, it seemed that the Court was in no mood to slice and dice the payment and clearing chain (a worthy subject for a separate post). The thought must be that if BNY is covered, the payment either will not take place, or will take place through others who would be at risk of contempt on the same theory as BNY. The only exempt link in the chain is the beneficial holders of the bonds -- but of course in today's world, there is no way of getting them the money without involving various market intermediaries (trustees, registrars, paying agents, etc.). The technical UCC concept of "intermediary bank" in the payments sense does not seem to map helpfully onto the clearing chain. More another day.
Big Bonus Feature: Sovereign Prerogative. One of the bigger bombshells of the day came from Argentina in the form of the statement that it would default on everyone unless the Court adopted something like its payment formula. The fact that the statement was made with the Vice President and the Economy Minister sitting in the room made it feel like an even bigger deal. Jonathan Blackman's contention was that sovereigns do not and cannot -- and Argentina will not --  "voluntarily obey" foreign judgments against their own domestic law and public policy. Argentina's submission to U.S. jurisdiction was made subject to the understanding that under FSIA, some judgments could go unenforced, and them's the ropes. Since NML was effectively (though not technically) trying to enforce a judgment, it was out of luck. Blackman's hypothetical of an Iranian court order against the U.S. government seemed like a high-risk move under the circumstances. The threat of default prompted Ted Olson for NML to say that Argentina promised this extreme course "to force this Court to back down ... The Court cannot give into that!" True, but methinks the goal was to make it easier for BNY and the Exchange Bondholders to say that the injunction was effectively directed at them (also true). Argentina made the Court very very mad, but it also made Olson sound a little hollow when he argued for upholding the injunction on the assumption that Argentina would comply -- it said it would not. The Court is then stuck with the choice between issuing a feckless injunction, and letting Argentina persist in its "contumacious" ways.
Little Bonus Features. Of all things, the rumor of Elliott's CDS holdings and their seat on the ISDA Determinations Committee came up (did NML stand to benefit from Argentina's default?), as did the idea of the escrow account (wouldn't it be good faith?), and the story about the Exchange Bondholders driving the passage of the Lock Law (innocent bystanders?!). Collective Action Clauses did NOT come up. Yay!
Third, the process. The hearing started with the Court announcing that Argentina's petition for rehearing was denied. This prompted some confusion, since Argentina asked for two rehearings -- panel and en banc -- and some people thought that only the panel rehearing was denied. No one has seen the denial order so far, so who knows. It sounded to me like the whole thing was denied, since Argentina seemed to suggest its only recourse now was the U.S. Supreme Court. UPDATED: Only the panel rehearing has been denied; the en banc petition is still apparently pending, though chances remain slimmest.
While there will be at least that one more round of appeals, and no doubt more submissions from the parties clarifying some of the points from the argument, there is some chance that the decision will be issued and the stay lifted before near-term payments on the exchange bonds are due. At least so it seems from the fact that one judge asked when those due dates might be (soonest in March). Of course if the Court decides to re-remand for more thinking about the formula, that would take more time -- but it seems awfully unlikely.
Fourth, the atmospherics, again. Boy was the Court mad at Argentina. The judges said clearly that they would not be driven by market reactions, the fate of other defaulted bondholders who would have to line up behind NML for their slice of the pari passu pie, the speculative incentive effects on restructurings, or wishy-washy policy imperatives they did not buy anyway. As they see it, they have a truly atrocious party before them, and they will do whatever it takes to get at it -- Argentina should be treated as the pariah it is. From this perspective, collateral damage does not seem terribly damaging.

Märkte befürchten eine zweite Pleite Argentiniens

MÖGLICHES URTEIL VON US-GERICHTMärkte befürchten eine zweite Pleite Argentiniens

Argentinien droht die nächste Staatspleite. Sollte das Lands trotz eines Schuldenschnitts einige Gläubiger doch noch restlos bedienen müssen, wird es eng. Ein Gericht muss über die Forderungen entscheiden.
Menschen tauschen in einer Wechselstube argentinische Pesos in US-Dollar um. Quelle: ap
Menschen tauschen in einer Wechselstube argentinische Pesos in US-Dollar um.Quelle: ap
FrankfurtDie Furcht vor der zweiten Staatspleite innerhalb von elf Jahren hat am Donnerstag die Preise für argentinische Credit Default Swaps (CDS) in die Höhe getrieben. Die Absicherung eines zehn Millionen Dollar schweren Pakets argentinischer Bonds für ein Jahr verteuerte sich im Vergleich zum Vortag um 862.000 auf 6,04 Millionen Dollar, wie der Datenanbieter Markit mitteilte
Als Auslöser nannten Börsianer den Auftakt der Anhörungen vor einem US-Berufungsgericht. In dem Verfahren will Argentinien gegen ein Urteil vorgehen, das das Land dazu verpflichtet, zehn Jahre nach seiner Staatspleite einige Investoren trotz eines Schuldenschnitts doch noch voll auszahlen zu müssen. Die Berufungsrichter betonten allerdings, ihr Job sei es „Verträge durchzusetzen, nicht sie umzuschreiben“.
Das deute darauf hin, dass die Richter die Klage abweisen werden, sagte Portfolio-Manager Kevin Daly von Aberdeen Asset Management. Damit steuere Argentinien auf die Zahlungsunfähigkeit zu. Im Falle einer Klage-Abweisung müsste das Land den Umschuldungsverweigerern 1,3 Milliarden Dollar zahlen.
Als Auslöser nannten Börsianer den Auftakt der Anhörungen vor einem US-Berufungsgericht. In dem Verfahren will Argentinien gegen ein Urteil vorgehen, das das Land dazu verpflichtet, zehn Jahre nach seiner Staatspleite einige Investoren trotz eines Schuldenschnitts doch noch voll auszahlen zu müssen. Die Berufungsrichter betonten allerdings, ihr Job sei es „Verträge durchzusetzen, nicht sie umzuschreiben“.
Das deute darauf hin, dass die Richter die Klage abweisen werden, sagte Portfolio-Manager Kevin Daly von Aberdeen Asset Management. Damit steuere Argentinien auf die Zahlungsunfähigkeit zu. Im Falle einer Klage-Abweisung müsste das Land den Umschuldungsverweigerern 1,3 Milliarden Dollar zahlen.
Der argentinische Aktienmarkt fiel um 3,2 Prozent auf ein Sechs-Wochen-Tief von 2.169,96 Punkten. Parallel dazu fiel der Währung auf ein Rekordtief. Ein Dollar verteuerte sich auf 5,045 Peso.

Lead Articles:

Lead Articles:
La Nacion: “Tough hearing for the country in U.S. court over default”
La Nacion: “The risk of default as a backdrop”
La Nacion: “Attorneys believe that the ruling will be rapid and adverse”
Clarin: “Debt: negative signals toward Argentina in New York court”
Clarin: ““The possibility is closed that the vultures collect”, says Boudou”
Clarin: ““The impact on the economy will be marginal”
El Cronista: “New York court rejects review of ruling and government says it will not pay the vultures”
El Cronista: “Judges more hostile than expected and unreceptive”
El Cronista: “The ‘trial of the century’ didn’t go unnoticed in New York: long lines and demonstrations”
El Cronista: “The next play by the vulture funds: claims at ICSID” (Mentions ATFA)
Ambito Financiero: “The message was ‘more will not be paid than is currently being paid’”
Ambito Financiero: “Boudou: “We are not going to break the law””
Ambito Financiero: “Recital or ruling?  Following through the filters” 
Ambito Financiero: “The strategy: to get Judge Parker’s vote”
Telam: “Argentina upholds principle of equality and the unbreakability of its law in paying the vulture funds”
Telam: “Economists agree on rejecting total payment to the vulture funds”  
Pagina/12: ““It was within the expected””
Tiempo Argentino: “Vultures: Argentina upheld its will to pay and respect for equality”
Infobae: “Boudou said that the negotiation with the holdouts ‘has no time limits’”
·         Argentina appealed to the impact of the sentence on the financial system (no byline)  Brief excerpts from the hearing transcript and afterwards with quotes from Jonathan Blackman, Amado Boudou, Ted Olson, Hernan Lorenzino.
·         Reaction to holdout hearing: investors seek protection from default” (no byline) l   In an “eloquent reaction” Argentine CDS at five years immediately rose close to 2200 basis points and bonds fell after the hearing ended.
·         After hearing, insurance against default rises by Ignacio Olivera Doll    One year CDS rose to 5200 as investors had a consensus that the hearing was negative.
·         Made in NY bonds: US$260 million coming due this quarter by Pablo Wende   Interest payments on the Global 17, Discount and Par are coming due in the first quarter of this year, far from the US$3.5 billion GDP coupon payment last December. 
·         Express ruling coming: markets get ready” by Guillermo Laborda   A short analysis that the perception is negative from the hearing, and the markets are getting ready for what is now expected to be a quick ruling.  “Paradoxically, today in the market there is a certain hope that in case the ruling goes against it, the government will opt to pay the US$1.4 billion demanded.  This could be called science fiction based on the statements already made and the political cost of the move.  Little served is the analysis that such payment would be recovered in a few days with the inflow of dollars that a measure of that nature would generate.  It’s worth recalling that US$800 million in deposits have already been lost in American currency in the banks.”
·         The government used its pumped up quorum in the House of Deputies to ram through the Iran MOU, after a very raucous debate where it was clear the opposition was intense and unified on the losing side.  Jewish community groups immediately said they would go to court to block the policy from taking effect.
·         Clarin reports that the Frigate Libertad will sail into the military port in Buenos Aires this afternoon, back at its home base.
·         “Iran” is trending in the top ten this morning, as well as “Nueva York”, of which some of the use is related to the hearing, but more is related to Dominican musician Luis Vargas suffering an accident in the city.

Why Argentina will default in 2013 By Felix Salmon FEBRUARY 28, 2013

Felix Salmon

Why Argentina will default in 2013

By Felix Salmon
FEBRUARY 28, 2013
Some countries default on their performing debt because they no longer have the ability to pay it. Other countries default on their performing debt because they no longer have the willingness to pay it. Argentina has been in both situations: something of a serial defaulter, it defaulted on or restructured its obligations in 1828, 1890, 1982, 1989, 2001, and 2005.
And it’s going to default once again in 2013.
This time, however, is a little bit different. Argentina has both the willingness and the ability to pay its performing debt. It’s adamant, however, that it’s not going to pay $1.4 billion to Elliott Associates, a hedge fund which has been prosecuting a highly-aggressive litigation strategy against the country, based on the fact that it holds defaulted debt and refused to exchange that debt for performing bonds. Depending on where you sit, Argentina’s refusal to pay off Elliott is either noble or foolish. But after two and a half hours of highly contentious oral testimony in federal appeals court today, it’s pretty clear that the US courts aren’t going to allow Argentina to stay current on its performing debt — not unless the country also writes a ten-figure check to Elliott. Which means that we’re headed straight for default, with almost no realistic chance of avoiding it.
You didn’t really need me to tell you that: one look at Argentina’s 12-month credit default swap (current spread: 5,266bp) will tell you everything you need to know. But this is a pretty big deal all the same — not least because the Second Circuit seems certain to hand down a judgment which is pretty bad law.
That’s nothing new: in its first decision, the Second Circuit happily ignored lots of settled law about sovereign immunity, among other things, and was downright wrong about pari passu. This time around, the law preventing the Second Circuit from upholding the lower court’s orders is much weaker, and mainly comprises something called Rule 65(d)(2)(C), which is even more obscure than pari passu. Essentially, the Second Circuit has proved itself more than capable of taking a steamroller to formidable legal obstacles; this one should present no real problems at all, by comparison.
The questioning was led, aggressively, by Judge Reena Raggi, who barely let a sentence get finished and who made it clear from the very beginning that she is if anything even more fed up with Argentina’s antics than the district court judge, Thomas Griesa, whose verdict was being appealed. The fact that Argentina’s vice president and economy minister were sitting right in front of her didn’t faze her for one second: this was her courtroom, she was in charge, and it took her no time at all to accuse Argentina of being “contumacious”. (Which is fair enough, even Argentina’s counsel didn’t really disagree on that front.) In Raggi’s eyes, clearly, there’s nothing worse than a contumacious defendant: it doesn’t matter how many footnotes you have or how much precedent you cite, if you’re thumbing your nose at her she’ll find against you.
What’s more, Raggi really doesn’t like being blackmailed. Both Argentina and David Boies, acting on behalf of the bondholders who are currently being paid by Argentina, made the point multiple times that if Griesa’s order was upheld, the certain result would be another Argentine default, a whole new set of cases on Griesa’s docket, and, essentially, a loss for everybody, including Elliott Associates, which still wouldn’t actually get paid. Raggi was unimpressed: “Is that really this court’s concern?” she asked Boies, saying that it was not her job to wonder about “whatever the market might do” as a result of her ruling.
Boies, in truth, was unimpressive: he never seemed entirely on top of his brief, and there was one excruciating episode where he had to go scurrying off to ask Bank of New York’s lawyer to find out the answer to a question which everybody else in the courtroom knew the answer to. Argentina’s tactic today was to spend less time arguing its own case, and to outsource the job of fighting Elliott to Bank of New York and to David Boies, in the hope that they would be more sympathetic and less contumacious. But Raggi made mincemeat both of BoNY’s lawyer — telling him in as many words at one point that he was giving very bad advice to his client — and of Boies, who was clearly out of his depth. Remarked one lawyer, observing the proceedings: “If you’re going to bring in a hired gun, at least make sure it’s fully loaded.”
Argentina’s own lawyer, Jonathan Blackman, started off rockily yet actually finished quite strongly, warning of the practical consequences of what everybody in the courtroom could quite clearly see coming at that point. “You’re making it worse!” he said. “Do no harm!” It was an argument with no legal weight, and it won’t change the final result. But he did give Argentina the use of a “don’t say we didn’t warn you” card at any time the US or anybody else criticizes it for defaulting yet again.
But the clear winner was Ted Olson, representing Elliott, who stayed calm and masterful throughout. In contrast to Boies, he knew exactly what he was talking about, was sure of the merits of his own case, and didn’t feel the need to appeal to Learned Hand precedent every few minutes. In front of more impartial judges, he might have had a harder time of it. But oral arguments aren’t the time or the place for jurisprudential nit-picking: that’s what detailed briefs are for. Rather, Olson’s job was to reassure the three appeals-court judges that they should feel perfectly comfortable upholding their colleague’s decision and standing up for legal rights enshrined in New York-law documentation. And he did that extremely well.
Or maybe the real winner was pretty much everybody in the courtroom, since the one thing that seems certain is that the amount of litigation and dealmaking surrounding Argentine sovereign debt — which has already been enormous — is going to become positively stratospheric. It’s hard to look too far into the future, here, but one likely scenario is that the appeals court will uphold Griesa’s decision at some point in April or May, forcing a big default in June. At that point, Argentina will probably launch an exchange offer under Argentine law, under which anybody holding currently-performing bonds would be able to swap them into bonds with substantially identical terms, just payable in Buenos Aires rather than New York. Given that Argentine-law bonds have been trading at tighter spreads then US-law bonds for some months now, one can assume that nearly all bondholders would jump at the opportunity to keep on getting their coupons.
Argentina might even take the opportunity to give its holdouts a third bite at the cherry, offering them some kind of option to take a haircut and get performing Argentine-law bonds in exchange for their defaulted debt. But many holdouts would still remain, and will surely continue to pester New York courts for the foreseeable future.
All of which helps explain why Argentina’s credit default swaps are trading so much wider than Argentina’s bonds. The bonds will probably default, but bondholders are unlikely to suffer huge losses if they just have a bit of patience for a couple of months — eventually, Argentina will surely give them the opportunity to swap their debt into a slightly different instrument, one which is less susceptible to New York jurists. That said, the credit default swaps will be triggered, and Argentina will probably drop out of key emerging-market indices like JP Morgan’s EMBI.
This is emphatically not what Argentina hoped for when it entered into its exchange offers in 2005 and 2010. Back then, the idea was that it could cure its default, mop up its holdouts somehow, or at least render them irrelevant, and ultimately make it back into the good graces of the international capital markets. Instead, Argentina remains a capital-markets pariah, it can’t really do business anywhere in the world without worrying that Elliott or someone like it is going to attach its property, and pretty soon it will probably have to give up on issuing any foreign debt at all, retreating instead to its own small South American world.
Argentina is a unique and special case on many levels: the failure of its 2005 and 2010 debt restructurings does not mean that debt restructurings in general don’t work, or that we need to resuscitate the idea of a sovereign bankruptcy regime. Still, the precedent being set here is not a happy one — not for international bondholders, probably not even for Elliott Associates, which is still a long way from getting paid, and definitely not for Argentina. This is looking very much like one of those court cases which absolutely everybody ends up losing.

Reuters Why Argentina will default in 2013 Thursday, February 28, 2013 By Felix Salmon

Debt Coverage:
Bloomberg: “Argentina Says It Won’t Voluntarily Comply With Bond Ruling”
Reuters: “Why Argentina will default in 2013” (Felix Salmon)
DealB%k: “Argentina’s Bond Case Is Being Closely Watched for Ramifications”
BBC: “Argentina tells court it will resist debt demands”
ABC News (AP): “Q&A: Argentina's NY Court Showdown on Default Debt”
Reuters: “Argentina stands by refusal to pay holdout creditors: hearing”
Seattle Times (AP): “Argentina, creditors face off in NY over debts”
The Wall Street Journal: “Argentina, Creditors Group Face Off”
DPA-Infocom: “Background: Argentina vs. hedge funds – Debt dispute heads for a showdown”
(Original in German)
Jubilee: “The Debt ‘Trial of the Century’ – Vulture Hedge Funds v. Argentina”
Thursday, February 28, 2013
By Bob Van Voris and Christie Smythe
Argentina’s claim that a U.S. court can’t tie its obligation to make defaulted bondholders whole to payments on restructured debt faced skepticism from judges as a lawyer for the country said it won’t obey orders to pay as much as $1.3 billion of defaulted sovereign debt.
Jonathan Blackman, the attorney for the South American nation, said yesterday that Argentina would default on its restructured debt if it’s forced by a three-judge appeals panel in New York to pay holders of the defaulted debt.
Thursday, February 28, 2013
By Felix Salmon
Some countries default on their performing debt because they no longer have the ability to pay it. Other countries default on their performing debt because they no longer have the willingness to pay it. Argentina has been in both situations: something of a serial defaulter, it defaulted on or restructured its obligations in 1828, 1890, 1982, 1989, 2001, and 2005.
And it’s going to default once again in 2013.
Wednesday, February 27, 2013
By Peter Eavis
A federal appeals court on Wednesday heard impassioned arguments from two of the nation’s most prominent lawyers in a case that pits a group of bond investors in a long-running battle with the country of Argentina.
Legal specialists who observed the proceedings at the United States Court of Appeals for the Second Circuit in Manhattan said they felt that the judges showed little sympathy for Argentina, which is refusing to make payments on the disputed bonds.
Wednesday, February 27, 2013
Argentina has signalled to a US court that it will resist demands by a group of investors to repay them in full 11 years after its huge debt default.
A New York appeals court was hearing arguments after a previous ruling that Argentina should pay $1.3bn (£857m).
Argentina refuses to pay anything to investors who declined to participate in a previous debt reduction deal involving most of the nation's lenders.
ABC News (AP)
Wednesday, February 27, 2013
By Michael Warren
Judgment day is approaching in an epic battle between Argentina and New York billionaire Paul Singer, who has sent lawyers around the globe trying to force the South American country to pay its defaulted debts.
Three U.S. appellate judges hear oral arguments in New York on Wednesday in the case, NML Capital Ltd. v. Argentina. The case has shaken bond markets, worried bankers, lawyers and diplomats, captivated financial analysts and generated enough "friend of the court" briefs to kill a small forest.
Wednesday, February 27, 2013
By Nate Raymond and Daniel Bases
(Reuters) - Argentina faced tough questions on Wednesday from a U.S. appeals court over its stance toward a group of dissident bondholders, a legal showdown that has sparked fears the country could have its second massive debt default in 11 years.
The 2nd U.S. Circuit Court of Appeals in New York heard more than two hours of arguments as it weighs whether to reverse an order that the Argentine government pay $1.3 billion to the so-called holdouts, led by Elliott Management affiliate NML Capital Ltd and Aurelius Capital Management.
The Seattle Times
Wednesday, February 27, 2013
By David Caruso
The Republic of Argentina squared off with a group of U.S. hedge funds Wednesday in a court case that has the potential to unravel deals the South American country made to get out from under a $100 billion pile of bad national debt.
The Republic of Argentina squared off with a group of U.S. hedge funds Wednesday in a court case that has the potential to unravel deals the South American country made to get out from under a $100 billion pile of bad national debt.
The Wall Street Journal
Wednesday, February 27, 2013
By Chad Bray and Dan Strumpf
Argentina and a group of its creditors had their latest legal clash before a U.S. appeals court Wednesday in a long-running dispute stemming from the South American nation's decision to default on its debt more than a decade ago.
Argentina, which defaulted on $100 billion in debt in 2001, had agreed to restructure about 92% of its debt, but a group of creditors who declined to participate in prior debt swaps are suing for full repayment in U.S. court.
Background: Argentina vs. hedge funds – Debt dispute heads for a showdown
Wednesday, February 27, 2013
New York. The legal dispute that has been raging for years between Argentina and two aggressive US hedge funds is entering was is likely to be the last round. For more than ten years, Argentina has refused to pay bond debt held by investors. If the country, which went bankrupt at the beginning of the last decade, remains true to its position, this could become very expensive – because the opponents are two aggressive financial speculators – NML and Aurelius – who are known for being relentless to bankrupt countries. On Wednesday the parties will meet before an appeals court in New York – maybe the last stop on a long journey through the justice system.
Both of the hedge funds, NML Capital from the empire of the American billionaire Paul Singer and Aurelius Capital Partners, are already specialized in exploiting debtors that are at rock bottom. This is precisely why they bought Argentinean government bonds at record low prices before the country filed for bankruptcy at the end of 2001. The funds insist on full repayment. They don’t make any compromises in collecting debts. Argentinean state assets are being hunted around the world by an army of lawyers. Last fall they succeeded in having an historical school sailing ship seized in Ghana – a symbolic coup. Recently the hedge funds scored two victories before the court – for this reason the South American country can’t service other debt. Anyways, the country has enough other problems. Argentina’s government leader, Cristina Kirchner, is fighting high inflation and low growth. The middle class is protesting against corruption, bureaucracy and mismanagement. And Argentina is the first country every to be reprimanded by the International Monetary Fund (IMF) for manipulating data on inflation. And then there are the hedge funds from New York.
In the dispute with the funds, which government representatives refer to as “vultures,” an advantage from the time before the debt rescheduling is turning into a big disadvantage. The reason that the South American country has to let itself be dragged before a court in New York in the first place is due to the fact that it wanted to make itself attractive for international investors with securities issued under US law. Up to now, however, Argentina has been having a hard time in New York. District Judge Thomas Griesa has already upheld the plaintiffs’ complaints twice. At the end of October, he ordered Argentina to pay the disputed amount of USD 1.3 billion to the hedge funds. Griesa also forbid the country from servicing the debt vis-à-vis its other creditors until they pay what they owe to Singer and Co.
This puts Argentina in a tight spot. In short, the judge’s ruling results in the following: If Argentina doesn’t pay its debt with the hedge funds, it can’t service the remaining bonds in the amount of USD 24 billion. It’s therefore a matter of all-or-nothing, but the latter would formally imply a payment default; that is, a technical government insolvency.
Argentina succeeded in suspending the ruling until February 27, which gives it time to present new arguments. However, the problem is that there are hardly any. It’s not because of a lack of money. For this reason, the government continues to mainly rely on grounds that the decision represents an attack on government immunity. This isn’t very convincing, writes a study by the law firm Shearman & Sterling, because this objection was already overturned in October. Ultimately it will probably have less to do with whether Argentina pays its stubborn creditors but rather how and when.
In the opinion of analyst Joseph Cotterill, who dealt with the conflict in the renowned financial blog “Alphaville” in the British “Financial Times,” however, there could still be straws that Argentina could grasp at. These involve the remaining bond creditors and the Bank of New York Mellon, both of which are on the side of the government. The reason for what seems at first glance to be a strange constellation of interests is that the interest payments for the other bond holders flow via the bank. Judge Griese had threatened to simply seize the money for the hedge funds there if Argentina continues to refuse to pay them. Obviously the real addressees don’t like this. However, the bank is fighting back and argues that it is a neutral institution that is only doing its job.
If the appeals judges rule in favor of the objection, the creditors, which have already waived a large share of their outstanding claims, could be serviced after all, avoiding the long arm of hedge funds. According to Cotterill, the group of investors, which had the money squeezed out of them, could be one reason why in the end the judges could abstain from making a tough decision against Argentina.
Buenos Aires will probably remain stubborn in any case and has already made this clear. Recently the government suggested that it might offer the old bonds again to reschedule debt. However, it’s unlikely that the “vulture” funds would agree to this because they have never been this close to their goal before. Argentina has already announced that it will go all the way to the US Supreme Court if need be.
However, experts doubt that they would even accept such a lawsuit. As a result, the decisive hearing could take place this evening already – the showdown starts on Wednesday at 8:00pm (CET). The parties have 15 minutes each to convince the judges.
Wednesday, February 27, 2013
By Jennifer Tong
Today, two holdout vulture funds, including Paul Singer’s NML Capital, are in a New York Federal court versus Argentina. The Financial Times has dubbed the proceeding the “‘the trial of the century’ in sovereign debt restructuring.” The US Government filed a friend-of-the-court brief noting a ruling against Argentina could make it much harder for countries in financial recovery or countries facing economic stresses to access credit and debt swaps.
The faith community and other groups, organized by Jubilee USA, will vigil out of concern for poor people affected by vulture funds during the proceeding outside the Federal 2nd Circuit Court of Appeals Wednesday, February 27th starting at 1:00 PM in New York City.  Vigils will also take place in London and Buenos Aires.
The Wall Street Journal
Wednesday, February 27, 2013
By Ken Parks
BUENOS AIRES--Argentina's benchmark government bonds closed with modest losses on Wednesday, as investors followed a court case whose outcome might lead the South American country to default on billions of dollars in bonds.
On Wednesday, lawyers representing Argentina and creditors presented oral arguments before a three-judge panel of the U.S. Second Circuit Court of Appeals in New York.
The Argentine government asked the panel to convene the court's full chamber of justices to consider overturning a lower court ruling that blocks Argentina from paying creditors who swapped defaulted Argentine bonds for new bonds in heavily discounted debt exchanges unless it also pays those investors who are suing for full repayment.