El Cronista: “The holdouts say they cannot be obliged to enter a swap”

Lead Articles:

 

El Cronista: “The holdouts say they cannot be obliged to enter a swap”

 

Ambito Financiero: “What did the vulture funds argue and how will it affect the final result”

 

El Cronista: “In the run-up to the holdout ruling, local Law bonds are a refuge”

 

La Nacion: “Agreement with Iran to review the AMIA case”

 

OTHER NEWS ITEMS:

• The reaction in Argentina to Cristina’s announcement on Twitter of the “truth commission” with Iran on the AMIA bombing has been largely negative.  While neither the AMIA nor the DAIA have issued a statement yet, relatives of victims have told the press they are very “suspicious” and angered, one calling it  “a monumental step backwards for Argentine justice.”  The opposition has been universally negative and condemned the agreement.  Alberto Fernandez said it was “not progress, it’s a retreat that represents an enormous weakening of our sovereignty.”  “An inexplicable cessation of sovereignty,” writes columnist Joaquin Morales Sola in La Nacion, “the news deserved something more than a few phrases from the President on Twitter … Why not a press conference with her or her foreign minister?  Did the two of them fear the precise and clarifying questions that could be posed by journalists?”  Federico Pinedo of PRO: “It’s not serious to announce an agreement over the mass murder of Argentines over Twitter.”  “The Argentine government denies, ignores and underestimates Argentine justice,” said Dep. Patricia Bullrich.  “The President is brutally confused about sovereignty and Argentine justice,” said dissident Peronist Dep. Gustavo Ferrari.
• Hector Timerman, returning from Ethiopia, will meet tomorrow with families of the victims to discuss the document, and it will be submitted for approval in Congress.
• At the Santiago summit of CELAC-EU, Argentina and Venezuela managed to water down the final communique to ensure it put forth a contradictory concept of a  European – Latin American free trade agreement that avoided protectionism but also took into serious account the imbalances in development.
• El Cronista reports that Morgan Stanley issued a report which predicts that Argentina’s Central Bank reserves will fall 21% this year, weakening the country’s solvency.  Bank of America, however, estimated a drop of only 6.7%.  Credit Suisse predicts a rise based on a lighter debt payment burden and a better trade surplus.

 

 

TRENDING TOPICS/ARGENTINA on Twitter:

• “Argentina e Iran”, “AMIA” and “Iran” are trending in this morning’s top 10.

 

 

El Cronista

The holdouts say they cannot be obliged to enter a swap

They responded thusly before the New York court to Argentina’s proposal to reopen the restructuring.  They insist on collecting at once.  The government responds on Friday.

 

Monday, January 28, 2013

 

ESTEBAN RAFELE Buenos Aires

 

The funds with Argentine bonds in default which are suing the government insisted before the Court of Appeals on their intention to collect 100% of their warrants in just one payment and rejected entering into an eventual reopening of the swap, in two briefs filed at the Court of Appeals early Saturday morning.

 

In response to the Argentine intention to reopen the debt restructuring on 2010 terms if the New York courts allow them, the funds NML Capital and Aurelius replied that they cannot be obliged to enter a swap because the bonds in default do not contain collective action clauses.  These state, for example, that with an acceptance for restructuring by 75% of the bondholders, the rest end up being included in the operation.

 

This is the main argument with which the “vulture funds” rejected both the possibility of entering the swap as well as the Argentine argument – also argued by the United States – that the ruling from lower court Judge Thomas Greisa, if upheld, puts at risk the entire financial system.  Greisa had obliged payment to the holdouts US$1.3 billion on their bonds and that financial agents that participate in the operation to retain that sum from the payments of restructured debt.  According to the plaintiffs, the current debt emissions possess sovereign collective action clauses which precisely avoid judicial complaints on the part of holdouts.

 

“Argentina argues that because 92% of the holders of bonds accepted the exchange it its two versions (2005 and 2010), the rest of the bondholders must now be forced to accept the historically unfavorable swap of 2010,” argued NML Capital and Aurelius.  “But, as this court has explained, because (the bonds) don’t contain collective action clauses, Argentina has no right to force (the plaintiffs) to accept a restructuring, even if it was approved by a super majority,” they continued.

 

“Some 99% of sovereign bonds under New York law today have collective action clauses, which require an acceptance of 75% and up,” said attorney Eugenio Bruno, expert from the Garrido firm.  The “vulture” funds said that Argentina cannot show in what manner the ruling would harm future restructurings.

 

Also, the plaintiffs rejected that a ruling in their favor would set off lawsuits from bondholders that accepted the exchange.

 

The funds recalled that the Court of Appeals had already ruled in favor of the clause of pari passu, or equal treatment, by which the holdouts must receive payments for their bonds in default.  And they had asked Greisa to define how much and how they should be paid.  The judge called for 100% payment in cash.  Another option that the court handled (and which it sent back for debate among the litigants) was equivalent payments to those that the bondholders receive who accepted the swap.  Thus, if they collect 100,000 dollars and that amount corresponds to 1% of principal plus interest, the vultures could collect 1% of their bonds plus interest.

 

“This brief will oblige the government to reply point for point in a solid manner to counter any of these arguments,” Garrido said.

 

Argentina must respond by Friday the 1^st, according to the schedule that the court imposed, in the face of the February 27 hearing.  The government believes that the “vulture” funds used the same arguments in previous briefs and that they emphasized the need to use intermediaries (financial agents that are participating in the payments) to oblige Argentina to pay.

 

 

Ambito Financiero

What did the vulture funds argue and how will it affect the final result?

 

Monday, January 28, 2013

 

By: Eugenio A. Bruno, Attorney

 

The speculative fund plaintiffs led by Elliott ratified that they aim to collect 100% of principal and interest owed since the default of 2001 and that comes to approximately US$1.4 billion according to the lower court rulings from Judge Thomas Griesa, upheld by the Court of Appeals in its sentence of October 26.  They filed two briefs, one relative to the payment formula and how much and in what way they aim to collect.  This brief was legally led by Elliott.  And the other, led by the Aurelius fund, related to the appeal of the injunction on Bank of New York.  In this article and by questions of space, we will refer to the brief about the main aims, signed by Elliott.  In a separate piece, we will analyze the brief related to Bank of New York and how it could affect the payment process for the performing bonds.

 

In the Elliott brief there is a review of said sentences and they express new considerations in rejecting the positions of the Argentine government and its amici, filed in recent weeks.  They continue with their beliefs about Argentina’s non-compliance and argue that the government is trying to “re-litigate” aspects that, in their understanding, are already “judicata” and that are not part of the issues under present judicial consideration.  They specify that all that is under litigation in this process are the two aspects about which the Court of Appeals had asked for greater precision from Griesa: the determination of the payment formula in relation to his decision on the violation of the pari passu clause and the extension of the injunction on payments that Argentina makes on exchange bonds upon the Bank of New York and other participating agents in the payment chain.

 

Violation of pari passu

 

In first place, they cite the appellate court, which in its ruling said that “Argentina has not honored its obligations because it has put its payment obligations to one creditor below those of others.”  This is the effect of the so called “lock law” which would mean a violation of the traditional interpretation of the pari passu clause.  But, also, the Court of Appeals also uses a new argument, which is that the two debts must be paid when they come due, which is to say, what is known as broad pari passu.  Then, they use both interpretations to penalize the country.

 

Payment formula

 

With respect to the payment formula, they cite Griesa’s ruling of November 21 in which 100% payment was determined, in one sum, and they upheld that this is the criteria that should predominate.  “By the judgment of Griesa – who interpreted the payment formula in his November 21 ruling – the payment of 1% phased in over 100 is a radical decision contrary to equal payment,” says the brief.  Of the readings made by the appellate court in its October 26 ruling (100% payment at once or in installments), Griesa and the plaintiffs found that the first should be applied.  But, also, the brief says that on this point, Argentina presented not a single proposal on the determination of the payment formula.  “In turn, it tried to re-discuss the existence of the remedy of equal treatment in payment which is already resolved by the appellate court,” they allege.

 

Voluntary swaps

 

Among the aspects that they ask to be rejected is the mention of the swap made by the government, as “that would impose an obligatory haircut on the holders that rejected it.  This would not be a clarification of the payment formula, but a reversal of the equal payment that the sentence orders, because the terms and conditions of the bonds do not include collective action clauses (under which the holders that do not enter the swaps must accept the decision of the majority).  Argentina has no right to force the holders to accept a restructuring.”

 

Absence of injustice

 

The brief also says that there is no injustice in some creditors collecting more than others. “The holders of the exchanged bonds knew of the existence of this litigation and that through it they could collect the totality of their claim and even attach payments destined for them.  This was written in the prospectus of the swaps.”  For that, they believe that by accepting the exchange there are two distinct debts, some with haircuts and others without, with different amounts that Argentina must repay.

 

Central Bank reserves

 

The plaintiffs also confirmed that Argentina has sufficient reserves to face the sentence.  They also write: “It’s difficult to believe that with more than US$40 billion in reserves, Argentina would still risk a second default in less than 11 years and the acceleration of bonds for billions of dollars to avoid paying an amount of US$1.4 billion.  So, if Argentina chooses this path, it is responsible for the damage that is done to the exchange bondholders.”

 

“As the Court of Appeals has already said, the sovereign debt market has included collective action clauses in the vast majority of its bonds emitted under New York law, which effectively eliminate the possibility of holdout litigation,” says the brief in relation to this point.  They also allege that the stability and credibility of New York depends on honoring the terms and conditions of bonds issued there.  Otherwise, Argentina – the brief says -, a sovereign country, could restructure part of its debt and then repudiate the rest.

 

Lawsuits for exchange bondholders

 

Elliott also refers to the argument that if Argentina pays the sentences, the holders of exchange bonds will sue to demand the same conditions.  They allege that this argument “is a groundless hyperbole.”  

 

 

El Cronista

In the run-up to the holdout ruling, local Law bonds are a refuge
The investors are taking up new bonds under Argentine law or seeking coverage for those issued in the US, given the volatility generated in the weeks running up to and after February 27, when the final arguments will be presented. They are going for Boden 15 and Bonar X. And they are getting rid of Global 17 or buying up Par with CDS protection.

 

Monday, January 28, 2013

 

By VERONICA DALTO Buenos Aires

 

The holdouts presented on Friday their arguments before the Appellate Court of New York and one more step was taken within the timetable of presentations to be closed next February 27 in the lawsuit between Argentina and the default bondholders, which is scaring off investors in the of bonds under New York law or is obliging them to seek coverage to handle the volatility which will lash these bonds in the coming weeks.

“Between the public papers, one month before the key hearing at the Appellate Court in NY, the trend for greater strength of the bonds under local legislation compared with foreign law ones, something which could become exacerbated given that the will and capacity to pay of the country at the end of the day continues to be the same,” said the economist Gustavo Ver in his stock exchange report.

The preference of investors may be observed in the mid-point of the dollar curve, where the Global 2017, (NY law) yields some 140 base points over the Bonar 2017, explained Ver.

The creditors` presentation, led by Elliott Management and Aurelius Capital, together with that to be made by Argentina on February 1 next, will lead to the ruling for or against the payment formula, as well as for or against the application of the sentence of the Bank of New York ordered by the ruling of the first instance judge Thomas Griesa for some 1.3 billion dollars.

The decision could go either way, which is what makes the investments in Argentine bonds very speculative. “Argentina is not a place to put your money at this moment,” said sources from the Bank of America Merril Lynch (BoAML) to El Cronista. Their recommendations are for those who “have to be invested in Argentina”.

They recommend short-term peso bonds (Boden 2015 and Bonar X) and a combination of bonds in long-term dollars (like the Par) protected by Credit Default Swaps (CDS). “The Par are listed near their recovery value and the combination with protection is a strategy that pays off well”, they explained. “If Argentina wins the case, the bond yields more than what you lose in protection. And if it loses, the CDS yields more than you lose by the default on the bond.”

“Our vision is conservative and favors bonds in pesos, but looking at them every day. We will change our recommendations on the basis of the updates provided by counsel,” explained experts from the organism who expect to see a high amount of volatility for the coming months, especially in the weeks preceding and subsequent to the final statements of February 27.

The consultancy Elypsis also advises staying away from the holdout risk in February, according to its latest report, as it expects a downturn in the temporary premium of bonds under New York Law.

“We shall continue to avoid this jurisdiction, not because we are concerned about a default—not even a technical one—but because the flow of news will probably continue to be negative for these instruments,” they said. This is based on the fact that the NY premium (the difference between the yield of the national law bond and the foreign law bond) has set foot on adverse soil, given the uncertainty of the ruling and the consequent strategy of the Argentine Government. Meanwhile, the 5 year CDS, reflects a probability of technical default, which the consultancy deems unlikely but which shows itself to be resistant. It recommended dollar-linked bonds for those whose pesos are stuck in the country, in line with the expectations concerning devaluation.