Lead Articles:
Clarin: “Vultures: offer is presented and will be similar to the 2010 swap”
El Cronista: “The government uses ‘silver bullet’ tomorrow: offer to the vulture funds before the final ruling”
Ambito Financiero: “Offer is presented, with legal help, to the NY court”
OTHER NEWS ITEMS:
- Cristina headed to Santa Cruz for the Easter holiday weekend, and as she now normally does when she heads south for a rest, she took to Twitter. Reportedly while on Tango 01, she sent out a series of 27 tweets. Most of them referred to her retelling of the events of last Sunday’s Day of Memory march at Plaza de Mayo, and she criticized the left-wing groups that wore red, “called themselves leftist and held garrotes in their hands to make threats” and contrasted them with “those young people dressed in blue and white raising the Argentine flag” – read the La Campora mobilization – who “made a human cordon” to avoid aggression from the red shirts. (The independent media told a different story, that by trying to commandeer the event, La Campora physically blocked other groups from entering the square.) After this series, Cristina expressed her solidarity with a young gay man in San Isidro who was beaten up at a high school party last weekend by other youths chanting “the Pope is Argentine, there cannot be Argentine faggots”. She noted that she knew he was “antiK like his mother” (he has declared he is part of the PRO and his mother has marched in the anti-K rallies), but she stressed her solidarity with him anyway. Finally, she noted that more international support is growing for Argentina’s position on the Falkland Islands: “Multilateralism and anticolonialism in full. ‘Very good’ (in English). See how I love to speak English?” she joked. “I regret having not listened to Ofelia, my mother, when she sent me to learn it.”
- El Cronista reports that the “blue” dollar started creeping up again, by 3 cents yesterday as the forced holiday at money changing houses ended.
- Daniel Scioli faces a growing crisis in the province of Buenos Aires as talks to end a paralyzing teachers strike formally collapsed last night, and it appears the teachers unions will increase their pressure on his already crisis-gripped government.
- There are reports in La Nacion that negotiations are in progress for the sale of Ambito Financiero to Grupo Olmos, owned by figures close to the Kirchner government.
TRENDING TOPICS/ARGENTINA on Twitter:
- “CFK” trended last night into this morning as the twitterverse commented on her latest fusillade of tweets. Also trending, as the teachers crisis worsens, are “Scioli” and “Buenos Aires”.
Clarin
Vultures: offer is presented and will be similar to the 2010 swap
There will be a bond with a discount, among other options. Risk of default goes up again.
Thursday, March 28, 2013
The Economy Ministry worked yesterday against the clock on the offer that it will offer to the vulture funds. In the afternoon, the team of Minister Hernan Lorenzino moved forward on the lines that “basically are the same from the 2010 swap,” according to what they said in his circle. And in an eventually announcement at the local level.
Tomorrow is the deadline for the government to present in U.S. court how and when it will pay the US$1.33 billion that Judge Thomas Griesa ordered.
In 2010, Argentina restructured US$12.1 billion of debt in default. For that, it emitted discount and global 2017 bonds to pay unpaid interest since 2005. The haircut in 2010 was the same as in 2005 (65%).
In the market, there are those that say that the government is evaluating the option of delivering a Par bond for the debt in default emitted in New York (US$450 million). This would mean that the country would recognize 100% of the debt. However, that would go against what the President said a month ago. In her speech to Congress, Cristina Kirchner confirmed that Argentina would pay the debt to the vultures. But they would not be offered better conditions than those established in the swaps of 2005 and 2010.
The attorney specialized in sovereign debt restructurings, Eugenio Bruno, explains why it would be harmful for the country to present a better offer. “The barriers are derived from the clauses of better creditor and rights under future offers signed in the 2010 swap.” According to these two point that Bruno mentions and appearing in the contracts signed at the time, any improvement that is offered to a holder of a warrant must be extended to those who entered in previous swaps..
Two days ago, the Court of Appeals for the Second Circuit in New York rejected a request from Argentina that a greater number of judges review the ruling from Judge Griesa. In October 2012, three judges from the court upheld Griesa’s order. But the government immediately asked that the 13 members of the court be the ones who rule in place of the three judge panel. The defense attorneys those that this would give greater judicial weight to their position.
In February 2012, Griesa ruled that Argentina violated what in law is known as equal treatment (pari passi): the country didn’t bay these investors what it did pay to the bondholders that entered the swaps. And it warned Bank of New York (Argentina payment agent) that it would be sanctioned in case it paid the bondholders and not the vulture funds.
If Griesa’s ruling is upheld, the mechanism by which the country pays its obligations in New York would fall apart. Argentina, eventually, could pay its obligations through another market (Europe). But any change to the conditions signed in the contracts and prospectuses approved by the U.S. authority would be considered a “technical default”. Yesterday, one day after it was learned that there had been this setback on the en banc request, Discount bonds (US$3 billion emitted in the 2005 swap coming due in 2033) fell 1.9 cents to 54.07 cents on the dollar yesterday, the lowest level since November 28. And the cost of protecting Argentina against a default during the next five years rose 197 basis points, or 1.97%. Argentina has the highest default risk in the world.
El Cronista
The government uses ‘silver bullet’ tomorrow: offer to the vulture funds before the final ruling
Economy Ministry presents an offer tomorrow with Par bonds, without haircut on capital but coming due in 25 years. If the court rules against it, it will have to redirect payments.
Thursday, March 28, 2013
The judicial fight against the vulture funds reached the decisive moment. Tomorrow the government will have to present before the Court of Appeals in New York the final offer with which it will pay the holders of debt in default, who are demanding US$1.33 billion for their unpaid bonds. The Executive will propose paying in the terms of the 2010 swap and will use Par bonds to settle the principal.
A month ago, the Court of Appeals obliged the country to present tomorrow’s offer. On Tuesday, that same court rejected an en banc review of the ruling issued on October 26 and which upheld the complaint from the fund NML Capital, of Elliott. The litigant plans to make stick the clause of equal treatment on its bonds in default for US$1.33 billion (including principal and interest) and argues that it’s being discriminated against by the country, which regularly pays restructured debt but not its warrants. The en banc review is a recourse by which a plenary of 13 judges review the ruling and would have given the country more time, which now leaves the use of the silver bullet.
It’s that the court could ratify the ruling of Judge Thomas Griesa, which obliged the country to deposit all the money and, in case of non-compliance, the fiduciary agent, Bank of New York (BoNY) would take that sum from the payment of regular debt. The ruling was stayed.
As El Cronista reported in its March 4 edition, the government is looking at paying 100% of the debt with Par bonds. Different from the Discount bonds, these papers have no haircut, but were emitted at 30 years, with full amortization at maturity and an interest of 2% annual. In other words, the bondholders wouldn’t recover their capital for three decade. The advantage of these bonds is that, in theory, it would allow the country to argue that 100% of the debt in default will be paid, as the bondholders demand. That is one of the interpretations of pari passu or equal treatment.
According to a report from Econometrica, this option would be 19% cheaper than offering Discount bonds (with a 66% haircut) plus other Global 2017s (for interest) and the GDP coupon. The latter combination was what was used in the 2010 swap and has a market value of 47 dollars, against the US$38 for a packet of 100 of the Par variant.
A third option that came out would mean a mix of the other two: a Par bond for the capital (US$450 million) and a Discount for the interest (US$850 million) and which an interest rate of 8.28% annual. As an “incentive” the Par would have a term of five years less than the traditional variant.
The attorneys at Cleary Gottlieb Steen & Hamilton will make the presentation. Different from the hearing of February 27, to which Vice President Amado Boudou and Minister Hernan Lorenzino traveled, officials will not participate.
It is expected that these alternatives will be rejected by NML Capital, which wants US$1.33 billion in cash. It’s the court that must be convinced.
While the option remains to go to the Supreme Court, Argentina already let it be known that it will not honor a ruling that obliges it to pay more than the terms of the debt swaps. In that case, it will have to redirect payments outside of the United States, if BoNY ends up obliged to retain transfers of funds to pay the regular debt, which would lead to a technical default.
Ambito Financiero
Offer is presented, with legal help, to the NY court
Thursday, March 28, 2013
By Carlos Burgueño
Argentina already has everything defined. Cristina de Kirchner brought to Patagonia the final report about the offer that will have to be presented tomorrow to the Court of Appeals in New York, of opening the offer to restructure the Argentine debt in defult, with the hope that it is accepted and thus end the long lawsuit that the vutlure funds have maintained against the country. As this newspaper reported yesterday, the paper that the President will have to approve in the coming hours includes the emission of a Par bond (without a haircut) coming due in 2038. The firm that represents the country, Cleary, Gottlieb, Steen & Hamilton (CGSH) will wait patiently until late tomorrow morning to then present the definitive proposal before the court, which after its decision of two days ago, will resolve only with the votes of judges Daniel Barrington Parker, Rosemary Pooler and Reena Raggi. It is then expected there will be a rapid ruling, probably in less than 10 days, but that does not impede the payment of interest on the Boden 1 on March 31 for some US$250 million, so Argentina will avoid a technical default.
What was learned in the last few hours is that extra and important help has been received by the country, and which seeks to reinforce the Argentine position in the second circuit court in New York. Bank of New York Mellon (BONY) again communicated with the court to strengthen its position made to the three judges in the February 27 hearing, where it defended the possibility of reopening the swap and asked that a negotiating stage be allowed with the creditors that didn’t accept entering the 2005 and 2010 calls and that are still litigating in the courts of New York. It’s known that the vulture funds will reject any offer of a new Par bond. If this occurs, more than 95% of the Argentine debt that fell into default in 2002 will have entered into a process of restructuring and the most difficult chapter in Argentine economic history in the realm of foreign debt will have ended.
What BONY did in recent hours was to communicate with the firm of CGSH to report to them that it reinforced its position before the court hours before the offer of the Argentine swap, to reiterate to it how important it is that the court not uphold the lower court ruling of last November from Judge Thomas Griesa that would oblige Argentina to pay some US$1.4 billion in cash to the vulture funds. As the government of Cristina de Kirchner would not pay that money and Argentina would obligatorily have entered in default and BONY would be declared co-responsible for having made that payment happen, so the bank will be guilty of a federal crime. With the decision by the court to not stay that ruling, BONY took a breath and decided to appear at the hearing on the 27th to defend Argentina’s position, at least so that it not be sanctioned. Now, the entity that is working as the trustee for the country’s payments on Wall Street reinforced its position in the court. The task was taken up by attorney James Martin, from the California firm Reed Smith, contracted especially for BONY by being an expert in appeals to avoid economic sanctions, one of those who also put together, with CGSH experts, the strategy to convince Judge Parker, who in theory will decide the votes of the three judges, which today is tied one to one.
What Martin said is that before the security that Argentina wouldn’t pay in cash 100% of the debt with the vulture funds, they would also sue BONY and open a new and long judicial round to resolve this punctual question. This, the bank said, would destroy “the state of New York as a place for restructuring debts,” according to the attorney, an argument that according to his jurisprudence should move Parker. According to what BONY mentioned, the obligation to pay the totality of the debt to the vulture funds “would destroy 80 years of trustee business on Wall Street.”
Martin also made it clear to the court that upholding Thomas Griesa’s ruling would bring everything “back to zero and would lead to the start of lawsuits with unthinkable consequences for New York,” a phrase designed especially for Parker’s conscience.
On the Argentine economic team there is optimisim, also, about an eventual appeal, in case that the ruling of the upper court is negative and the offer to reopen the swap is rejected. This is to appeal to the U.S. Supreme Court. For this direct contacts are intended to be strengthened with Martin and BONY, where it will be key for the high court of that country to accept the Argentine case. The country could turn to this court, attorneys explained, according to determining the responsibility of the entity as a financial agent that executes Argentina’s debt payments. If it is found by the court to be directly responsible for guaranteeing that the money be deposited to pay the running Argentine debt be shared with the holdouts (as the lower court Judge Thomas Griesa ordered), paradoxically it would be a guarantee for Argentina. It happens that if this occurs, the federal rights of this financial entity would be affected by being turned into a criminal accomplice in a payment that the country already knows it will not make. It would be turned into an accomplice of a federal crime. Before this circumstance, the bank would have the right to turn to the high court, and Argentina therefore would carry the case to the highest court. It happens that in that instance no more than 25 to 30 cases are accepted per year, and the lawsuit against the vulture funds would have to be one of them. The good news is that there are positive precedents, both for the acceptance as well as getting a favorable outcome. On June 25 of last year, the U.S. Supreme Court rejected a request from 2005 from the vulture funds.
It was for US$106 million, which had been demanded as a payment guarantee by the vulture funds, with a first favorable ruling to them by Griesa. Then, the same appellate court that yesterday heard Argentina decided to refuse the attachment, the vulture funds appealed and finally the case reached to the Supreme Court under the argument of being affected by federal law that grants immunity to the money that central banks of the whole world deposit in that country. According to the Supreme Court, this money is “neither subject to attachment nor executable.”
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