El Cronista: “Vulture funds: If the lawsuit with the holdouts stretches into 2015, there is more freedom to make agreement”

Lead Articles:

 

El Cronista: “Vulture funds: If the lawsuit with the holdouts stretches into 2015, there is more freedom to make agreement” 

 

El Cronista: “To gain time, the government asked for another review from the Court in New York”

 

El Cronista: “Todesca supports the reopening of the swap  “

 

OTHER NEWS ITEMS:

·         AF reports that “everything is ready” for the Bonar VII payment on Thursday through the Caja de Valores in Buenos Aires, and according to an unnamed Economy Ministry source, the government is hoping that about US$300 million of the US$2.07 billion payment will remain inside the country.   In a separate AF piece, it is noted that once “the Bonar VII ends its useful life it’s place will be taken by the Boden 2015,” a bond that yields 12% with Argentine legislation; “the unknown is what investors will do with the US$2 billion” from the upcoming Bonar payment, the hope being that continued appetite for bonds with local law will follow to a shift of dollars from one to the other.

·         Former Foreign Minister Jorge Taiana has re-emerged from obscurity to be the new lead FpV candidate on the Buenos Aires city council list.  Cristina will share the stage today in an event to launch the pro-K block’s city candidates.

 

 

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El Cronista

Vulture funds: If the lawsuit with the holdouts stretches into 2015, there is more freedom to make agreement

On December 31, 2014, the most favorable creditor clause expires.  This scenario would give the government a margin to seek an agreement with the holdouts without being exposed to lawsuits by the other bondholders. For that to happen, it’s key that the U.S. Supreme Court take the case and seek the opinion of the Solicitor General.  The calendar of maturities for next year marks the risk of technical default.

 

Monday, September 9, 2013

 

By Maria Elena Candia

 

While the government is aiming at minimizing the volume of debt that could enter into technical default if in the medium term the worst case scenario is confirmed for Argentina in the fight with the vulture funds, the options could be different if the legal course of the New York lawsuit gets to 2015.

 

What happens is that on December 31, 2014, the “most favored creditors clause” expires, which was included in the terms of the 2005 offer, which grants the bondholders the right to receive any additional benefit that the government agrees to grant in the future. That means that if Argentina manages to stretch out the legal process another 16 months, it could generate a formula of agreement with the holdouts without the country being exposed to lawsuits from the other bondholders.  

 

“In procedural terms, it’s possible that while the Supreme Court doesn’t listen to Argentina, the sentence has no effect until the end of 2014, when the most favored investor clause is no longer applicable.  Starting then, it would stop being exposed to lawsuits from the other bondholders for making any offer or payment.  But it’s very difficult to see someone in Argentina politically accepting paying more, unless the effects of the sentence would be too harmful,” said Marcelo Etchebarne, partner of the firm of Cabanellas, Etchebarne, Kelly & Dell’Oro Maini.  However, Argentina could pay in complying with a sentence without setting off the clause before that date, by it not being a voluntary offer.

 

Anna Gelpern, professor of law at Georgetown University, agrees that the case could be delayed until 2015, but warns: “the chances lessen as long as Argentina continues communicating how it will skirt the ruling if the judicial decisions don’t turn out its way.”

 

According to the firm of Shearman Sterling, based in New York, if the Supreme Court reviews the Argentine case, the final sentence could take place between March and April 2014.  If the Court denies the petition for review, the ruling would be final and the stay would fall away, a recourse that allows the country to comply with debt payments without entering into technical default.  However, the Court could ask for the opinion of the Solicitor General to express the view of the United States in the case, which would delay the process until at least June 2015.  Experts in the case estimate that by having a sovereign involved, this scenario is likely.

 

According to Rodrigo Olivares, professor of Finance at London University, “if the Court rules but there are no debt payments, nothing happens.  These terms will depend on how the procedural timetable is handled by the Court,” Olivares explained, adding: “Assuming that it doesn’t make it to 2015, if it doesn’t pay the holdouts Argentina will go back into default on all its external obligations.”

 

In 2014, the Par bonds come due on March 31 and September 30, while the Discount and Global bonds will be on June 30 and December 31.  

 

 

El Cronista

To gain time, the government asked for another review from the Court in New York

It asked for a plenary review of the Court of Appeals and said that the sentence against it “commits serious errors.”  A denial is assumed, but it’s a first step before the Supreme Court.  

 

Monday, September 9, 2013

 

On Friday at the last minute for the procedural deadline, Argentina asked for the plenary of the Court of Appeals in New York to review the ruling that a panel of that court issued in favor of the holdouts which orders the country to pay US$1.5 billion on bonds in default.  The Executive said that the sentence which orders payment to be made with the money from renegotiated debt, “commits serious legal errors” and “defies what is commercially responsible.”

 

The government asked for en banc review of the sentence that a panel of the Court issued on August 23, which upheld without ifs or buts what the lower court judge, Thomas Griesa, ordered.  The court said that country has to pay Paul Singer’s NML Capital, Blue Angel and Aurelius 100% of the claim under the clause of pari passu or equal treatment.  The court ordered Bank of New York to retain money from the regular debt payments if the government doesn’t honor the ruling, which was stayed.

 

The judicial strategy seeks to gain time.  The government is assuming that the en banc review will be rejected and that, afterwards, the appeal will arrive at the Supreme Court.  According to statistics from the Federal Council of Attorneys cited by Reuters, between 2001 and 2010, the en banc appeal only was accepted by 0.03% of the cases.  An official source estimated that it will be weeks until having a verdict and, then, there are another 60 days to appeal to the highest court.  The government would be assured of the next debt payment, at the end of September, for US$164 million.  Meanwhile, Economy Minister Hernán Lorenzino is preparing the reopening of the swap, the last Argentine offer.  It is expected that this week, the House of Deputies will give final approval to the suspension of the Lock Law which allows for the third debt swap.

 

So, the first part of the sentence in favor of the “vulture” funds is awaiting decision of the U.S. Supreme Court, which must decide if it accepts the case or not.  On that occasions, the en banc review was denied.  Now, the government, led by the law firm of Cleary Gottlieb, went back to the arguments that appellate judges Reena Raggi, Barrington Parker and Rosemary Pooler rejected.  The country said that the ruling puts in danger future debt restructurings around the world and violates the U.S. law of sovereign immunity, which states that a state cannot be attached if it is complying with its own laws – in this case the law from Congress which impedes making a better offer.  

 

“The decision (by Appeals) commits dangerous legal errors that magnify the error of previous decisions of that Court,” says the brief filed by the country.  Bondholders with renegotiated bonds from the Exchange Bondholders Group also asked for review of the ruling.  

 

On the one hand, Griesa received a request on Tuesday from the litigants to seek information about attachable assets like Enarsa, YPF, the banks Barclays and Citi (which participated in restructurings), and others.  It is “from the discovery process which is being brought forward for two years and in which Argentina has had favorable rulings,” said Finance Secretary Adrián Cosentino. “The vultures seek (…) mainly to find assets of the Argentine Republic abroad,” he continued.  

 

 

El Cronista

Todesca supports the reopening of the swap  

 

Monday, September 9, 2013

 

The former Economy vice minister, Jorge Todesca, found that Argentina “was right” in its proposal about the debt against the holdouts and said that “it’s good” that the swap be reopened, “because it shows the will to make payments” under the same conditions that it does for the rest of the bondholders.  

 

However, he warned that Argentina “has been very badly defended in the courts of the New York, because it has made few demonstrations of a willingness to accept the ruling while the lawsuit has unfolded, which constitutes a kind of potential contempt of court.”  “It has been virtually accepted that the ruling will not be accepted, which is an imprudent position while a lawsuit is unfolding,” said Todesca in an interview with the Noticias Argentinas news agency.

 

The head of the consultancy Finsoport said it was negative that in 10 years “there has not been a serious and successful negotiation” with the Paris Club.  Also that the IMF has been impeded in making its annual report about the economy, and recalled that among the 188 countries that are in that organization, only 8 are not complying (the review of Article 4), among them Argentina.”