With its latest submission in this Court, the Republic of Argentina continues its long and consistent pattern of defaulting on its contractual obligations, defying the laws of the United States (which its contracts expressly invoked), and showing contempt for the courts to whose jurisdiction it unreservedly submitted. The government of Argentina plainly believes the rule of law does not apply to it…
Guess that’s a no, then.
The Second Circuit got a response on Friday from holdouts to Argentina’s proposed plan to pay them and end the pari passu saga. It is by turns coruscating and dismissive, and it never ever stops harping on the Argentine government’s substitution of bond-valuation magic tricks for what the courts actually want. This is to “make current those debt obligations on the original bonds that have gone unpaid over the last 11 years”.
And in some ways a cogent one. We might come back to the claims by NML and the other plaintiffs fully later (some of the bond valuation claims are interesting, and we also looked at Argentina’s plan earlier, finding it really weak for some of the reasons the holdouts pick out here). But for now, some pungent quotes…
On the value of the bonds
Argentina proposes to never pay its obligations on Appellees’ FAA Bonds and, instead, to replace those Bonds with an assortment of new bonds modeled on—but actually substantially worse than—the exchange offers this Court determined Appellees “were completely within their rights to reject.”Even under Argentina’s own math, this package of IOUs is worth just $210 million—less than 15% of the $1.47 billion Appellees were owed under the FAA Bonds as of March 1, 2013—and would not begin to repay principal for more than a decade…What is more, Argentina apparently would issue the securities for this proposal in a new series. The securities in this new series would be at obvious risk for future default given Argentina’s oft-repeated promise never to pay Appellees. This inevitably will diminish—if not eliminate entirely—the pool of potential secondary purchasers of these securities, and this diminished demand inevitably will impair the market value of these new bonds…
On pari passu and equal treatment
As this Court’s October 26 Decision squarely held, the Provision does not require Argentina to rank or treat bondholders equally; it requires Argentina to rank “payment obligations” at least equally… Argentina’s proposal, in contrast, makes no attempt to honor its “payment obligations” under the FAA Bonds, now or ever…Argentina misleadingly invokes the Exchange Bondholders’ “Rights Upon Future Offers” clause… but that clause comes into play only if Argentina “voluntarily makes an offer to purchase or exchange” defaulted bonds… Nothing in this clause prevents Argentina from complying with an injunction, issued by a district court of the United States. After all, compliance with an injunction is in no sense “voluntary”…
On holdouts making lots of money, and Argentina not being happy about that
Argentina also levels a new, desperate attack on the Injunction, assertingwithout any record evidence that the Injunction leads to “exorbitant” returns for certain Appellees. In the first instance, the amount that Argentina owes today is the result only of Argentina’s obdurate refusal for 11 years to make payment on its FAA Bonds. Argentina’s imaginations about the “returns” Appellees will garner are based only upon conjecture as to the amount that certain Appellees paid for their bonds on the secondary market, and, in any event, take no account of the extraordinary lengths to which Appellees have had to go in pursuit of payment…
On Argentina’s ability to pay
Argentina has decades to repay its obligations on the Exchange Bonds, and has promised to do so “under any condition, in any instance, whatever the [court] result”… Argentina paying Appellees the $1.47 billion that it owes Appellees now would not in any way impair its ability to honor its payment obligations on the Exchange Bonds over the coming decades…
“Argentina’s years of defiance cannot be cured by a convoluted offer to give Appellees yet more Argentine IOUs, worth pennies-on-the-dollar…” And so on. The response also appends a recent Moody’s paper which argued holdouts aren’t serious threats to the success of sovereign debt restructuring.
We don’t know when the Second Circuit could make its final order (May? June?) but it won’t be good for Argentina if the judges take even half of this stuff on board.
And you wouldn’t know that Elliott has never ruled out making an out-of-court settlement with Argentina…
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