Argentina: no default for now
So the stay stays. Holdouts-1, Argentina -1.
The US Second Circuit Court of Appeals has frozen New York Judge Thomas Griesa’s order, stopping Argentina from having to pay $1.3bn into an escrow account by December 15.
That removes an immediate risk of default and pushes a definitive ruling on this thorny issue back to after a February 27 hearing. If Judge Griesa’s November 21 ruling was a victory for Elliott Associates and the “holdouts”, the appeals court stay order equalised for Argentina.
So now what?
All eyes will be on whether Argentina lifts the so-called “lock law” and gives holdouts their third (after “take-it-or-leave-it” offers in 2005 and 2010, which Elliott and others rubbished) chance to swap their debt and take restructured bonds at a writedown.
The government hinted as much in its emergency motion to the court on Monday and Hernán Lorenzino, the economy minister, has confirmed it is something that would abide by Argentine law and could be put to Congress. He even said nothing would be done until the appeals court spoke. Now it has.
Alfonso Prat Gay, a former central bank president and now opposition deputy, had this to say on television on Monday night:
The ball is now in Argentina’s court. Argentina has to explain why Griesa’s ruling is inapplicable … Is it a good idea to reopen the exchange? No.
Why not? Because the GDP warrants Argentina issued to sweeten the swap (which, remember, offerd a brutal 30 cents on the dollar) mean that Argentina has ended up paying restructured creditors “a fortune” and “the only thing the swap achieved was to extend the maturities”. Argentina has up to 2038 to repay its restructured bonds.
So what could happen now?
1. The appeals court will rule sometime after its February 27 hearing, and the exchange bondholders can also take part. With another payment to exchange creditors due in March, that could mean a return of the default jitters that have rattled markets these past weeks. Argentina and the exchange bondholders have vowed to take all the way to the US Supreme Court if need be; Argentina even says it will even take its case to international tribunals.
2. If Argentina wants to reopen the swap, it probably needs to get moving on the lock law sooner rather than later.
3. The appeals court is not expected to reopen the judge’s interpretation of pari passu as it is only now dealing with his response to its concerns about the payment mechanism and the impact on third parties. However, Argentina has already filed an appeal asking for all 13 judges, not just a three-strong panel, to review the case, so that could, presumably, change.
4. The appeals court could uphold Judge Griesa’s order in full, or it could take issue with parts of it. Potentially, it could lift its application to third parties. While that would clear the way for Argentina to continue paying its exchange bondholders, and for them to continue receiving the funds, it could create a scenario in which the holdouts have a payment order but cannot collect. Argentina has a long history of not paying up on court rulings. Ergo, more litigation.
One thing to bear in mind, especially if this one runs and runs, is that Argentina is blocked from not offering holdouts better terms than in its 2005 and 2010 swaps. So even if it reopens the swap – something the government is now floating as a possibility – it must do so on the same terms (which the holdouts have rejected twice now).
But, that legal requirement not to offer better terms runs out on December 31, 2014. If after that date, Argentina made a payment to holdouts that was better than the exchange bondholders got, tough. The exchange bondholders would not have the right to sue to get the same treatment.
For now, Argentina’s government can breathe a sigh of relief (although the timetable imposed by the court may upset some people’s southern hemisphere summer holiday plans). But this is far from over yet.
Related reading:
Argentina debt repayment order frozen, FT
Argentina vs vultures: 4 scenarios, beyondbrics
Analysis: Argentina, an unforgiven debt, FT
Argentina v holdout file, beyondbrics
Pari Passu saga, FT Alphaville
Argentina debt repayment order frozen, FT
Argentina vs vultures: 4 scenarios, beyondbrics
Analysis: Argentina, an unforgiven debt, FT
Argentina v holdout file, beyondbrics
Pari Passu saga, FT Alphaville
Keine Kommentare:
Kommentar veröffentlichen