The government could pay the bondholders on Argentine soil

El Cronista

Holdouts: Argentina is planning scenarios for the day after the sentence

 

Monday, July 29, 2013

 

By Esteban Rafele

 

While the experts that follow the judicial case between Argentina and the holdouts in New York predict a harmful imminent ruling for the country the government has begun to delineate alternatives to follow in the face of a setback in the court and an eventual refusal by the U.S. Supreme Court to take the case.

 

However, as officials and attorneys understand, the procedural timing will stretch out the consequences of a possible negative ruling at least until next year, which gives the government time to design financial tools to protect the payments on normalized debt from a potential judicial injunction like the one that lower court Judge Thomas Griesa issued.  The judge found that Argentina must pay 100% of the US$1.33 billion that NML Capital, of Paul Singer, demands and ordered Bank of New York and the clearing agents charged with moving the restructured debt payments to withhold that amount if the government doesn’t pay the sentence.

 

The experts that understand U.S. judicial timeframes are increasingly inclined to wait for a contrary ruling for the country.  In the worst case scenario, the Court of Appeals will uphold Griesa’s ruling without changes.  Another possibility is that it orders 100% payment of the sentence, but takes the heat off BONY and other payment agents.  This would condemn the country, but will not ensure payment to the vulture funds.  Argentina already warned that it will not comply with a ruling of that kind.

 

One of the possibilities that the government could manage is the one of diagramming a similar one to the one used when a Ghana court attached the Frigate Libertad: seek to change the jurisdiction of the lawsuit and go to an international court.  In this case, Argentina submitted itself to the law and the courts of New York voluntarily, which will make this alternative difficult.

 

At the same time, on Friday the clock began running for the Supreme Court to decide if it takes the case or not.  The deadline was that day for interested third parties to present briefs as friends of the case, or amicus curiae.  Supporting Argentina were the government of France, the bondholders that restructured debt grouped together in the Exchange Bondholder Group, the Euro Bondholders, Fintech and the Caja de Valores. In their briefs, the bondholders understood that Griesa’s order is “an unprecedented violation” of the U.S. sovereign immunities law, a federal law that would oblige the Supreme Court to act.  The Caja de Valores found the ruling to be “disruptive to the international bond market and the system of payments.”  While the government of the United States didn’t file a brief, it will have to act on the request of the Supreme Court later on.

 

 

El Cronista

The government could pay the bondholders on Argentine soil

Consulted by El Cronista on the lawsuit with the holdouts, Schnabl argues that if the ruling of the Court of Appeals is not favorable, the court will take into account the third parties.  This hypothetical scenario would push the government to analyze how to pay the bondholders on Argentine soil

 

Monday, July 29, 2013

 

MARÍA ELENA CANDIA Buenos Aires

 

“The support of the United States does not significantly increase the chances that the Supreme Court will listen to the Argentine case,” explains Marco Schnabl, the Argentine attorney based in the United States, whom ANSeS hired to impede the attachment issued by Judge Thomas Griesa in 2008 on funds that the entity inherited from the AFJPs in New York.

 

Charged now with presenting the brief from the Puente firm in favor of Argentina before the Court of Appeals, Schnabl is a partner in the U.S. law firm of Skadden, Apps, Slate, Meagher & Flom, where is dedicate to arbitration, contentious issues and international corporate law.  Consulted by El Cronista around the lawsuit the country has with the holdouts, Schabl argues that if the ruling of the Court of Appeals is not favorable to the country, the court would take into account third parties.  In this hypothetical scenario, it wouldn’t surprise him that the country is analyzing how to pay the bondholders on Argentine soil.  To do so, Argentina will not suffer real consequences, by not having attachable assets abroad.

 

- What lesson can be drawn from the withdrawal of the IMF’s support for Argentina?

 

-From the legal point of view, it has no substantial implication.  Of course, it would be better to have their support.  But in my judgment, from the American point of view, the lesson we have here is that the IMF’s role at this level is excessive.  Here one operates from a civilian and Latino point of view that alleges that if some government entity says something, the courts will naturally obey.  And the absence of an official organization is not something that an American court finds relevant, must less if the presence of the IMF is voluntary or not requested by the court.

 

-But some argue that the support of the U.S. increases the chances that the Supreme Court would take the appeal…

 

-In no way.  The support of the United States doesn’t significantly increase the chances that the court will hear the case.  As with the IMF, it would have been better to have it, but its absence is not critical.  The probability that the court takes the case is very small because there are 7000 filings per year, of which the court takes between 120 and 150, totally at its discretion.  What determines the Court’s interest in a case is its implications for U.S. federal law and the importance of the issue within the sphere of action of the federal courts.  And in the United States there is no federal contract law, these are governed by the contract laws of each state.  I doubt that the highest court will choose to review a ruling that, from the Argentine point of view, could be “mistaken” around its application of New York law.

 

-Could the Supreme Court be interested in another aspect of the lawsuit?

 

-The only thing that could interest the Court is the Argentine argument that under federal law which regulates the way in which one can sue a sovereign, the Foreign Sovereign Immunities Act (FSIA), the essential characteristic of assets that can be attached and subject to court order is that they belong to the sovereign, they are in the United States and they are used for commercial ends.   So, the argument Argentina presented in its petition for review is that they are saying to the country how to use its assets outside its territory and that is prohibited by American federal law, the FSIA.  This position is quite convincing and could come to be solid, but not all solid arguments motivate the court to review cases.

 

-How then wil the legal process continue?

 

-We will have a ruling from the Court of Appeals around how to apply pari passu and I doubt the Supreme Court will take the case until that result is known.  For example, if the court of the second circuit sides with the country completely around what remedy to apply, it is not unthinkable that the country will withdraw its appeal and honor it because it is what Argentina offered to do.  What direction will the case go it until it is seen unfolding in its totality?  I think there are two options: either the Court of Appeals gives the country what it is willing to do or not.  And after we will see what Argentina does, if it obeys or not.

 

-Who will make the settlement, this government or the next one?

 

-This is a political question, not a legal one.  Some can say that this government is too involved in policies or postures that will impede a negotiation with the holdouts and that the next government, if not this one, will be in a more free political position to generate an agreement.  But while there are no Argentine assets abroad to attach… this doesn’t affect the legal realities of the case.

 

-In case the ruling is negative, will third parties be subject to it?  

 

-It’s likely that if there is a ruling that isn’t the one that Argentina said it will abide by, there will be an order that says that no entity in the United States can cooperate with the country in changing the means of payment.  Why will a court tolerate giving an order to the country and give it the means to evade it with the help of American entities subject to their jurisdiction?  That is not likely.

 

-How could the country keep paying the bondholders that did enter the exchange?

 

-It wouldn’t surprise me that Argentina has already been studying the necessary mechanism to pay the bondholders on Argentine soil or in places beyond the prohibitions that could be established by the courts.  Precisely how to do it is another issue.  But if there is money and a political will, it would not amaze me that Argentina is thinking that it could pay the restructured debt at the corner of San Martin and Corrientes so to speak.  We can only speculate if this is being studied.  If it is decided to go that route, it’s possible that the court will find Argentina in contempt.  That undoubtedly would be a legal and political event of great note, but I go back to the same line: the existence or not of assets abroad that are subject to attachment ad the lack of political importance that the country has given to not being inserted in the international financial market. As long as this doesn’t change, I doubt anything will happen.

 

 

Ambito Financiero

Argentina adds new support against the vultures

 

Monday, July 29, 2013

 

While the outcome of the lawsuit against the vulture funds is awaited from the Court of Appeals in New York, new filings continue to pile up in favor of Argentina’s position in what is known in legal jargon as “amicus curiae”.  According to sources linked to the Manhattan courts, representatives of more than 93% of those that entered the swaps again went along with Argentina.

 

On one side, the Exchange Bondholder Group, Fintech and the Euro Bondholders filed their “amici” before the Supreme Court, joining the Argentine position.  The EBG, which represents a notorious group of financial institutions and funds in the United States, with the right to collect debt service from Argentina for more than US$1.5 billion, once again highlighted their position that the order upheld by the Court of Appeals should be reversed by the American high court.  On the other, and on the basis of its own arguments and refreshing others that follow the same line put forth in the past by the Clearing House Association, Euroclear and the government of Barack Obama, the Caja de Valores let the U.S. Supreme Court know its position in relation to the sentence that condemned Argentina over a violation of the pari passu clause.  It did so through its attorneys Raúl R. Herrera and Ramón Marx, of Arnold and Porter, who wrote that the sentence from the Court of Appeals on October 26 should be reversed by the Supreme Court based on two arguments.  One is the extra-territoriality of the order issued by the Second District (sic) court, which is an unprecedented decision that ignores the territorial limits imposed by the FSIA on the jurisdiction of American judges, which are now reaching out for assets that are outside the territory of that country.  The Caja argues that the order also goes against the presumption of territoriality in the mentioned law argued repeated by the Supreme Court in the past and in other American courts.  And in the second term, as said by Clearing House Association, Euroclear and the U.S. government, the Caja as a system of payments and clearing house warns of the risk of disruption to the international bond market and the system of payments due to this order being able to affect the efficient functioning, imposing heavy costs and delays in the international system of payments on sovereign bonds, and the risk of subjecting financial institutions to legal conflicts in different jurisdictions.  They also argue that the order would side will give a place to a greater volume of litigation around the world as the U.S. government said in its filings before the appellate court.  All agree that swaps continue to be the main mechanism for restructuring debts and that the decision of the Second District (sic) weakens this tool for responding to crises.  

 

 

 

Telam

The Argentine case against the vulture funds sets off internal battles between France, the United States and the IMF

 

Monday, July 29, 2013

 

by Mara Laudonia

 

France, the U.S. and the IMF brought to light internal conflicts over their political position against the vulture funds, in a series of moves that elevated the fear that world finance will descend into chaos if a ruling against Argentina is upheld.  

 

It was the culmination of a very heated week in the history of world finance, which added Europe as a key protagonist in the saga of the “lawsuit of the century”: France intervened before the U.S. Supreme Court in support of the Argentine position that the ruling that was favorable to the vulture funds be reviewed.

 

The decision to cross the pond of jurisdiction like the implications of that ruling would imply was so unprecedented that the success of future debt restructurings would falter, and even the use of New York as a leading market in international finance, according to the findings in the 26-page brief, sent to SCOTUS.

 

On the one hand, it went public that there was an informal meeting of the directors of the IMF, after which the head of the entity, Christine Lagarde, decided to step back from her intention to send support for the country to the SCOTUS “following the decision of the United States to not support the filing at this stage,” according to what IMF spokesmen admitted.

 

The surprising change of tone by the U.S., a majority member of the IMF, left Lagarde in an uncomfortable position, after she was in Moscow for the G-20 last week with Economy ministers, among them from the U.S. Treasury, Jack Lew, and from Argentina, Hernan Lorenzino, and confirmed there in a press conference her intention to send the brief that backed the local position over the “negative implications” at the global level.

 

The Brazilian director and representative of 10 countries before the IMF, Paulo Nogueria Batista, revealed his “surprise” and non-conformity with the “abrupt change of attitude by the United States” in an interview granted to Telam.

 

And despite his assurance that “the IMF damages its reputation if it allows itself to be influenced by only one position, from the U.S., which is a multilateral organization,” he justified Lagarde in part in a subsequent chat: “Could Lagarde send a brief to the Supreme Court of a member country, when that country indicated that it would not do so at this stage?” he said.

 

According to what Telam reconstructed, that meeting in Lagarde’s office left representative directors from the BRICs and the European Union with their mouths open, as they’d been encouraged by the United States to file the brief.

 

"The United States was not going to file by their own initiative before the Supreme Court – (according to what went public last week) – but they encouraged an internal discussion,” Batista added.

 

Despite the new situation, it doesn’t invalidate the public position that the U.S. already made in the first and second judicial instances, nor the position of Lagarde and her team against the actions of the vulture funds, and the negative implications of Griesa’s ruling at the systemic level, which was public last April, after a discussion of the document on the board.

 

The Obama government was clear that it considers that the ruling will damage the international economic relations of the U.S., alter the confidence of the New York market as a global center, and will affect future debt restructurings.

 

The Justice Department also indicated last week that it does not rule out a subsequent involvement; that could happen if the SCOTUS solicits the United States’ opinion.

 

In the fact, the U.S. never anticipated the judicial steps: it sent to New York court and the SCOTUS various “amici” with a favorable position to Argentina every time the courts asked for it, in different battles over the last 10 years after the default, and not by its own initiative.

 

In the middle, there was a great row and a tremendous lobby from the vulture funds on the Obama administration, legislators and the IMF, warning of a “loss of IMF neutrality.”

 

However, Francois Hollande decided to mark its turf before the SCOTUS by being an “active participant” in the financial community, as a “member of the Paris Club” and as an “expert in sovereign restructurings”, according to its justifications, and revealed its position against the Griesa ruling for the first time:

 

-It argues that the interpretation that Argentina violated pari passu (equal treatment to the creditors) “based on an erroneous comprehension of the meaning of the pari passu clauses and contradicts the main well-established current of understanding in the market that the pari passu clause that ll the payment will be made by a borrower in a proportional manner with others not subordinated to the borrower.”

 

-That the ruling is an “international threat” and that it would have “a harmful effect on the debtor among lenders like France,” and in “the viability of a negotiated resolution of a debt crisis.”

 

-That the same “will inevitably lead to a rise in the number of holdouts and, specifically, the “vulture funds” that will try to take advantage of the decision of the Court of Appeals in future restructurings,” it warned, among other affirmations.

 

Lastly, it came out last week that the SCOTUS received more support to the Argentine petition for appeal, from the exchange bondholders, among others, Fintech and the Exchange Bondholders Group led by Gramercy, affected third parties in this dispute, as they did at the appellate court stage.