Is The Obama Administration's Entry In Sovereign Restructurings About To Unleash Havoc?
The ongoing fight between Elliott Capital (et al, i.e., "the holdouts") and Argentina may moved to the backburner recently as the topic of sovereign bond impairment is not as actual today as it was a year ago (it will be again soon once the European double bluff of OMT and Japan's carry trade finally fizzle and European political crises return) nor have any Argentinian ships been confiscated recently by the multi-billion hedge fund, but that does not mean it is any less relevant or has any less implications for the global sovereign debt market. But while global consensus had largely been largely against Argentina in its treatment of holdouts, that may soon change in a very dramatic manner with a new and very unexpected entrant, one supporting the Argentinian position, and for all the wrong reasons too: the US president.
As FinAlternatives reports, "the Obama administration may take sides in the battle between Paul Singer's Elliott Management and the government of Argentina, but not the side Singer would like. The Washington Post, citing people familiar with the case, said the U.S. Justice Department is mulling filing a brief at the Supreme Court defending the concept of sovereign immunity, which protects nations from lawsuits. On Friday, reported the paper, Justice Department officials met with lawyers on both sides of the dispute, along with representatives from the Treasury and State departments."
More:
Elliott Management is one of a group of U.S. hedge funds and investors that bought Argentine debt (some at fire sale prices following the country's default in 2002) and has refused to participate in the settlement deal Argentina has reached with most bondholders. Singer and the others are holding out for what they consider fair value of the debt. Argentina said if it loses the case, the investors could walk away with over $1 billion in profits.Singer, a major Republican party donor, has spearheaded the battle in U.S. courts to force Argentina to pay up. At the appeals court level in New York, the Justice Department sided with Argentina on several issues.
It hardly bears recalling what happened the last time the Obama administration entered the "restructuring" process with all the grace of a bull in a liquidation waterfall shop specifically in the cases of GM and Chrysler, and how according to many may have perverted the basic concept of Superpriority, perhaps for ever, now that a claim is only junior as long as labor unions with the explicit backing of the president decide not to make it senior.
But all that will pale in comparison with the total chaos that certainly erupt if political motives - and Obama vs Paul Singer is nothing but pure politics between a president and one of his wealthiest republican critics - get involved in a seminal sovereign restructuring case.
And sadly, that is precisely what appears to be imminent.
The end result of this process, should Obama's political ambitions to "defend the concept of sovereign immunity" indeed manifest in a case law moratorium on sovereign lawsuits by impaired bondholders, will be chaos unlike any ever seen in the sovereign restructuring arena, and may well be the catalyst for the next round of sovereign bond sales as the last thing any bondholder will want (especially those in possession of weak-covenant, local law bonds) is to be personally targeted by the corrupt cronies (aideda and abetted by the NSA's pervasive surveillance) Department of Injustice.
Ironically, if Obama's intention is simply to bring stability to the sovereign bond arena with this course of action, he may soon set a chain of events that results in the next big sovereign bond crash. Though in a world defined and controlled by central planners, nothing would surprise us any more.
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