- Worst case scenario: The panel of judges finds that the country violated pari passu and condemns it to pay the vultures as Griesa ordered, in one cash payment, conditioning the paying out of debt payments to the compliance with the sentence

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Key support against the vultures
The New York court accepted the request of the Obama government to participate in the demand for review of Griesa’s ruling by all 13 judges of the court, a recourse requested by Argentina.

Friday, February 8, 2013

By Tomás Lukin

The Court of Appeals in New York accepted the U.S. government making a filing backing the position of Argentina in the dispute that the country has with the vulture funds. The court authorized the American authorities to participate in the demand for a review with the 13 judges of the court about the underlying issue: the validity of the clause of equal treatment, or pari passu. That review was requested by Argentina but still has not been opened nor denied by the Court of Appeals, where a panel of judges still must decide on a payment formula for the complaint from the vultures led by the fund NML of Paul Singer that it not discriminate against those who participated in the swaps nor put at risk the functioning of the financial system of New York.

On February 27, the formal deadlines pass for the litigation, set by the court, with the hearing among the parties in the New York courtroom. The court cited NML and the law firm of Cleary Gottlieb Steen & Hamilton, which represents Argentina, to hold oral presentations of 15 minutes each. On Tuesday, Bank of New York, payment agent for the foreign debt which defended its interests and strengthens Argentina’s position in this case, asked the judges for 10 minutes to explain its position. “We know that you do not intend to accept more speakers. But we need to argue because no one could better explain” the consequences that there would be for the American financial system by upholding the ruling of lower court Judge Thomas Griesa, the banking entity argued.

When that hearing ends, the judges that rejected the payment formula in cash put forth by Griesa will have to decide on a payment mechanism for Argentina. The country put on the table the possibility of offering the vultures the same conditions of the haircut, reduction of interest and extension of time from the swap that the speculative funds already turned down twice, hoping to collect the total of their balances. The government’s legal advisors believe that the judges could take, at a minimum, between two and three months to issue a sentence. On the economic team of Economy Minister Hernan Lorenzino, they are handling different possible scenarios, from minimum to maximum, for that moment:

- Condemnation with swap: The Court of Appeals argues that the country violated the clause of equal treatment and indicates that to remedy this situation, Argentina will have to pay under the same conditions as the bondholders that entered the debt swap, a path that the government opened in December. As a sign of good will, while the vultures, by their nature, will not participate, the government will send the proposal to reopen the swap to Congress.

- Abstract condemnation: The judges find that Argentina must pay the vultures all that they demand – US$1.33 billion- but without affecting the payment circuit, nor the intermediaries. That way, Argentina would have a sentence against it that according to CFK will never be paid but could continue covering foreign debt payments without problems in New York.

- Worst case scenario: The panel of judges finds that the country violated pari passu and condemns it to pay the vultures as Griesa ordered, in one cash payment, conditioning the paying out of debt payments to the compliance with the sentence. While unlikely, these same judges already rejected Griesa’s sentence affecting American intermediaries and even others outside its jurisdiction, this scenario would require a re-engineering of debt payments.

In the last two cases, the legal path will continue to be through an appeal to the Supreme Court. While it’s rare that the highest court would accept those cases, at Economy they believe that the arguments on violating sovereign immunity and the public interest – the impact on the functioning of New York as an international financial center – will allow the top court to take the case.

On Lorenzino’s team, they don’t dismiss the possibility that the Court of Appeals would authorize, even after the sentence of the three-judge panel is known, the en banc review on the underlying question, the pari passu clause. If it reaches that level, the court already accepted the presentation of the government of the United States.