Kicillof evaluating four proposals to move ahead on a solution with the holdouts
Goldman Sachs, HSBC, UBS and Deutsche Bank met with the Economy Minister to analyze options that allow a settlement on the debt with the funds that didn’t enter the swap. Countdown begins for Argentina to close positions with the creditors before an unfavorable ruling in U.S. courts
Wednesday, February 19, 2014
By Leandro Gabin
The government moved one of its last pieces on the board yesterday by filing the appeal before the U.S. Supreme Court. The response from the vulture funds will have to wait 30 days from the official brief. But the clock already started to run. They know in the Economy Ministry that it is virtually impossible for the highest U.S. court to end up ruling in favor of the country (due to the immediate precedents). The only question is when the judgment will come out. There are no deadlines for the Supreme Court to indicate if it will take the Argentine appeal or not. It could even be after CFK’s term ends. But what is clear is that the plans for avoiding a shock in case of an adverse ruling have begun to move. Axel Kicillof has on the table a total of four proposals from international banks to solve the holdouts issue and, in some cases, get new financing.
Infobae reported on meetings between the Economy Minister and two entities just one day before the official have a clear pro-market nod presenting an inflation index closer to reality. Now it has come out that Kicillof finds four proposals as viable, which international banks have brought to the ministry. The candidates are UBS, Deutsche Bank, Goldman Sachs and HSBC. The latter entity, for being English, will be virtually ruled out. Criticisms are known about for the previous economic team (Amado Boudou, Hernán Lorenzino and Adrián Cosentino) contracting the services of Barclays Capital, which was then accused of being a partner of Desire Petroleum which was exploring in the Malvinas Islands.
Overall, nobody was yet formally ruled out by Kicillof. The minister’s selection will take into account not only what will have the best level of potential success with the creditors, but also gives fresh funds for alleviating the Treasury’s coffers. Financing needs go hand in hand with finding a solution to the lawsuit with the holdouts. Argentina has restricted access to external financing for possible attachments on the payments. Only YPF, which has a better rating than the sovereign, could get funds abroad at less than 10%. At one time, in Economy there was talk that the return to the markets would be through the oil company. And while Miguel Galuccio and his CFO, Daniel González (an ex-banker from Merrill Lynch) have the intentions of placing bonds on the market, those dollars wouldn’t cover official needs. From there, the return to the market could be a question of timing.
This way, Kicillof will begin to open the game. Also participating in the meetings that the minister had with the banks was Finance Secretary Pablo López. For this economic team, with less expertise than the previous one in financing issues, is getting an advanced class on how the market sees Argentina and the possible solutions. In that sense, the Gramercy plan, which had been sounded out by Hernan Lorenzino, ended up being openly ruled out. According to what this news service could find out, that was one of the reasons why Kicillof ended up leaving the former Economy minister almost without input. Kicillof presumes that the Debt Restructuring Unit that they created to keep Lorenzino functioning, in reality, was like Gramercy’s lobby factory. This fund is linked to Vice President Amado Boudou, tattered by corruption allegations, and had “helped” by buying part of the debt the country had in the ICSID.
Gramercy, led by a U.S. bank that had good relations with Néstor Kirchner during the reopening of the swap in 2010, showed up once again as the Argentine government’s savior. There was a rumor that the new economic team had taken note of the almost close relationship that Lorenzino had with this fund linked to Boudou, and for that reason not only put it aside but left the ex-Economy minister without a say.
Vultures: Argentina, before the U.S. Court, insisted on the danger of default
• Final appeal filed yesterday
• Government rejected restructuring offer from Gramercy- Deutsche Bank.
Wednesday, February 19, 2014
by: Carlos Burgueño
Argentina warned the U.S. Supreme Court yesterday about the danger of falling into a new default estimated at some US$24 billion, if the highest court decides to uphold the negative rulings for the country from the lower courts in the case of the vulture funds. So says the brief filed yesterday by the government of Cristina de Kirchner, through an appeal written jointly by the attorneys at Cleary, Gottlieb, Steen & Hamilton (CGSH), Jonathan Blackman and Carmine Bocuzzi (who until now have run the Argentine strategy in the American courts); and the new attorney hired by the country, former solicitor general Paul Clement. As the main novelty of the brief, which has a total of 264 pages (until now the country has opted for shorter filings) has Argentina complaining to the Court that it should review the two negative rulings in lower courts due to the danger of “a new default for US$24 billion.” It mentions that should the rulings of Thomas Griesa and the Court of Appeals of New York be upheld, the bondholders that entered the two first debt swaps could sue over the haircuts applied and carry the country to a new default. The brief then speaks of the impossibility of dealing with that claim both for the amount of reserves as well as the economic and social effects it would have over the “citizens of the country.”
Meanwhile, the government of Cristina de Kirchner continues with its parallel strategy for trying to put together an offer to the holdouts that are suing in American courts. Yesterday, officially, the proposal from ex-vulture fund Gramercy ended up being discarded, which had Deutsche Bank as financial agent, and a new offer will be worked on. The new idea, still under study, has as a leader the Argentine attorney Eugenio Bruno (from the Garrido firm) and had as one of the advising banks UBS of Switzerland. The final decision will be taken in a few days by Economy Minister Axel Kicillof, which starting this week is personally managing the case against the vulture funds and the offer that will be made to the bondholders still in default, together with Finance Secretary Pablo Lopez.
The new proposal being explored by the Kicillof-Lopez tandem (in collaboration with the ambassador in the U.S., Cecilia Nahon), is the option presented jointly by the local attorney and the Swiss entity, by which the total debt in default would be restructured (some US$9 billion; of which US$5 billion would be in the hands of vulture funds), through a swap for new long-term bonds (more than 10 years), a haircut (with negotiable percentage) and the possibility of accessing a minimum of US$1 billion for reinforcing the Central Bank reserves. The operation offered by UBS also would be free of charge for the government as the commissions would fall to the new debt purchasers. It should be recalled that the Gramercy proposal also hadn’t sat well with the Elliott vulture funds, of Paul Singer, who called the idea “bizarre”. Now he is waiting for a favorable ruling from the Court for going back to negotiate with Argentina.
In the government’s filing before the U.S. Supreme Court yesterday, it also mentions that two previous rulings "violate the sovereignty of the Argentine Republic in an attempt to coerce it to pay the plaintiffs with reserves which enjoy sovereign immunity" and that "since there is no bankruptcy regime for sovereign states, Argentina followed international practice and successfully restructured almost 93% of its debt, fulfilling the payments to bondholders since then.”
In addition, the government argued that " Argentina has never repudiated its debt and is committed to treating all bondholders equally, including the plaintiffs,” referring to the speculative funds that initiated the lawsuit against the country. The filing warned that "the consequences of this case go beyond the Argentine Republic" and argued that if the Court does not review decisions from lower courts " future sovereign-debt restructurings could become virtually impossible.”
The country argued that upholding previous rulings will "prevent the proper functioning of the international capital markets" and would put at risk the status of New York “as one of the major global financial centers.” The appeal also warns that "it will negatively affect international relations." “These decisions manifestly threaten the well-being of the Argentine Republic and its citizens, as well as innumerable holders of Argentine debt with whom it is in compliance," the filing said.
"Thus, the Court is petitioned to send the back to the highest state court of New York the question of the interpretation of the pari passu clause contained in the sovereign bonds, and review and reverse the erroneous interpretation of the Foreign Sovereign Immunities Act of the United States (FSIA) adopted by the lower courts,” concludes the filing. Now, Argentina has a second and possibly last chance to convince the Court to take the case. It will be on April 21st, when the hearing is held to take up a case parallel to the one of the holdouts; the complaint by the vulture fund Elliott (the same that attached the Frigate) so that the Court will allow it to do the same with Argentine accounts at Banco Nacion on Wall Street.
Negotiate, yes or no?
Wednesday, February 19, 2014
The vulture fund Elliott, the main promoter of the lawsuit against Argentina in U.S. courts, had a dual attitude yesterday. On the one hand, through its attorney Ted Olson, who called on the court to “not listen to Argentina” in its appeal to the highest court. He did it through a brief filed minutes after the Argentine appeal. In parallel, Jay Newman, one of its financial operators, affirmed that Paul Singer’s fund is ready to talk and that “if Argentina wants to negotiate, the dispute would be resolved rapidly.”