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Donnerstag, 18. Juli 2013

IMF to file brief with U.S. Supreme Court in Argentina case

IMF to file brief with U.S. Supreme Court in Argentina case

NEW YORK, July 17 | Wed Jul 17, 2013 9:07pm EDT
(Reuters) - In an unprecedented move, the International Monetary Fund plans to ask the U.S. Supreme Court to review Argentina's case in a decade-old legal battle with holdout creditors, because of the implications it could have on sovereign debt restructurings.
Argentina is seeking to void an October 2012 ruling by the 2nd U.S. Circuit Court of Appeals in New York that found it had violated a clause in its sovereign bond documents, known as pari passu, and requiring it to treat all creditors equally.
In a letter sent to the holdout investors on Tuesday, IMF Managing Director Christine Lagarde informed the plaintiffs of her intention to recommend to the executive board that the fund file the amicus curiae, or friend-of-the-court brief, by the July 26th deadline, advocates for the holdouts said on Wednesday.
"The Managing Director of the IMF will be recommending to the Fund's executive board that the Fund file an amicus curiae brief in support of the petition for a writ of certiorari in the case of Argentina v. NML Capital," the letter said, according to the American Task Force Argentina (AFTA).
The IMF has never before filed a brief to the U.S. Supreme Court.
The letter was sent to the plaintiffs, including NML Capital, a unit of billionaire hedge fund manager Paul Singer's Elliott Management, and Aurelius Capital Management. Members of AFTA, which advocates for a better settlement to the default, include holdout investors.
The 2nd Circuit has yet to rule on whether to uphold U.S. District Judge Thomas Griesa's order last November that Argentina pay holdout bondholders $1.33 billion.
The Supreme Court is on its summer break and won't decide whether to hear the case until the fall.
Over the last decade, holdout investors and Argentina have sparred in the U.S. courts over the South American country's $100 billion default in 2002.
Three sources familiar with the strategies of Elliott and Aurelius have said all of their prior attempts to negotiate a settlement with Argentina have been rejected by President Cristina Kirchner, who has called the holdouts "vultures." The sources declined to be identified because they are not authorized to speak about the matter.
The IMF declined to comment.
A person familiar with the IMF's position who is not authorized to speak about the matter said: "The issue has to do with the stability of the financial system. It is not a filing on behalf or in favor of Argentina's actions. If upheld, the decision will have important implications on sovereign debt restructurings."
The matter has not been made public nor has the executive committee decided on the matter, the source said.
However, in an April 26th research paper, the IMF said if the decisions against Argentina are upheld, this "could exacerbate collective action problems and risk undermining the sovereign debt restructuring process."
The U.S. Government, in prior briefs, has agreed with that sentiment.
But the 2nd Circuit rejected those arguments, saying most new bonds include collective action clauses that eliminate the threat of holdout litigation by requiring that all creditors accept a restructuring if it is approved by a supermajority.
James Kerr, a lawyer from Davis Polk who is representing the IMF, confirmed the letter was sent to the plaintiffs' lawyers, Theodore Olson of Gibson Dunn and Robert Cohen of Dechert.
Elliott Management declined to comment and a representative from Aurelius was not immediately available for comment.
Holdouts declined to take part in two restructurings in 2005 and 2010 which drew participation from 93 percent of bondholders who accepted returns as low as 25 cents on the dollar.
Bondholders who participated in the exchanges and now hold about $24 billion in restructured debt are at risk of a technical default.
Argentina has said it would never pay holdout investors what they want and appear willing to enter into a technical default rather than bow to the court's ruling. Griesa imposed an injunction against any intermediary bank that processes the payments on behalf of Argentina unless holdout investors are paid their award at the same time.
The IMF's move to back Argentina's case brings together two parties who have not exactly gotten along in recent history.
On Feb. 1 the IMF reprimanded Argentina for the lack of progress in improving the accuracy of its economic data. It has until Sept. 29 to fix flawed data or face possible sanction.

Argentina has cut financing ties with the IMF and relations between the two have steadily deteriorated since the 2001-2002 debt crisis, which many ordinary Argentines blame on IMF policies. (Reporting by Daniel Bases; Editing by Richard Chang and Ken Wills)

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