But the question then will be what does the court do about the stay on payments? We think the COA will want to lift the stay, as J Griesa attempted in November, so that it can target a specific upcoming payment on the exchange bonds, thereby giving its order some meat. Lifting the stay to target a specific upcoming payment will help focus (Argentine) minds. Upcoming payments are on 2 June (Global 17s), 31 June (Discounts) and 30 September (Pars). So, if Argentina does not want to pay the plaintiffs, we could conceivably have a default as soon as 2 June, but it could be after that, depending on when the court gives its verdict.

Argentina’s pari passu case: waiting for the final piece of the jigsaw
We must now be getting close to the day when the US court of appeals gives its final decision on the ongoing legal case of Argentina versus plaintiffs (holdout creditors). The latest deadline, and perhaps the last before the court’s decision, is approaching. The court gave plaintiffs until 22 April to respond to Argentina’s own payment proposal which it presented to the court on 29 March. Ahead of the deadline, we take stock of recent developments and highlight some of the key issues.
Our last published update was in our bi-weekly dated 1 March, following the court’s oral hearing. Our detailed analysis was published in our note, Argentina – un(in)tendered consequences, dated 20 December 2012.
Recent developments
The various milestones in the appeals court’s schedule have nearly all been reached. In affirming in part and remanding in part its decision in the legal case of Argentina versus NML on 26 October, the US court of appeals set out a timetable for further consideration of the case and subsequently added further briefing requirements. A key milestone was the oral hearing which occurred on 27 February, on which we set out our thoughts in our aforementioned bi-weekly. We saw the hearing as negative for Argentina and its exchange bonds as it increased the chances of a victory for the holdouts and ultimately by extension, the chances of default. Since then, there have been a few other noteworthy developments. The appeals court on 1 March subsequently ordered Argentina to provide its own payment proposal by 29 March, which it duly did, albeit at the eleventh hour. As that deadline approached, on 26 March, the appeals court declined Argentina’s request for an en banc hearing, helping to remove one element of uncertainty about the process. And on 2 April, the appeals court ordered the plaintiffs to respond to Argentina’s payment proposal by 22 April. Assuming they do so, nearly all the jigsaw pieces will be in place. One would have to assume that then the court of appeals will be armed with all the information it has been seeking with which to make its final decision. But we do not know when the court will actually give its ruling – it could still be days or weeks away.
What next?
We expect the plaintiffs will reject Argentina’s alternative payment proposal. In the words of J Greisa in the lower court of the Southern District Court of New York, in his 21 November opinion on the remanded issues, “Argentina owes this [US$1.3bn to the plaintiffs] and owes it now”. We cannot imagine plaintiffs would lower their demands at this stage. Argentina’s payment proposal essentially replicates the terms of the 2010 exchange. Despite perhaps some optimism to the contrary, this probably should not have been a surprise given the government’s position and constraints. We expect the plaintiffs to reject Argentina’s proposal, as 40-50 cents of face value (at current prices) is a long way from the claim of something like 300% of principal the plaintiffs are seeking.
Then what? Even at this late stage, there are still various scenarios as to how this might play out.
In our most likely scenario, we expect the court of appeals to (1) uphold in full its previous ruling (so, deciding in favour of the plaintiffs) – no surprise there, perhaps, given events so far – and (2) enjoin BONY (based on our assessment of the discussion at the oral hearing in February), and other third parties, in order to enforce the ruling. This means Argentina will be faced with either paying the plaintiffs (which seems unlikely) or defaulting – either strategically as a decision by the government (“To hell with this Western conspiracy”) or technically through the payment chain; ie Argentina transfers the payments on the exchange bonds to BONY (an act which itself would be in contempt of court under the terms of the injunction as it stands, if Argentina has not simultaneously paid the plaintiffs), but BONY would be prevented by the order from remitting the payments through the system if it is enjoined, so causing a technical default. Argentina may risk being in contempt of court but we doubt BONY would. Argentina could then claim “Well, we made the payments, we haven’t defaulted”, but default it would be.
But the question then will be what does the court do about the stay on payments? We think the COA will want to lift the stay, as J Griesa attempted in November, so that it can target a specific upcoming payment on the exchange bonds, thereby giving its order some meat. Lifting the stay to target a specific upcoming payment will help focus (Argentine) minds. Upcoming payments are on 2 June (Global 17s), 31 June (Discounts) and 30 September (Pars). So, if Argentina does not want to pay the plaintiffs, we could conceivably have a default as soon as 2 June, but it could be after that, depending on when the court gives its verdict.
We see a wrinkle though. We are not sure if the stay can be lifted yet. In the same way the appeals court reintroduced the stay in November after J Griesa sought to lift it, as the appeals court said the stay couldn’t be lifted while it was still reviewing the case, it is conceivable the same thing could happen again – this time, it would be the appeals court that wants to lift the stay to enforce its injunction but perhaps it cannot if there is still an appeal under way. Aware that Argentina is likely to appeal its decision (so the appeals courts’ ruling may not be the end of the matter), the stay may have to remain in place for the duration of the appeals process – and perhaps this will require a further order by J Griesa. As the judge said in his 19 November oral hearing “The stay was my order. If there was some reason to amend my order, I would amend my order. I think it would be quite

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