La Nacion
A case in the U.S. gets complicated
Wednesday, July 25, 2012
By Martin Kanenguiser
A legal case that Argentine lost in a lower U.S. court got complicated in a hearing held yesterday in New York, over the strong criticism that two judges made toward the decision by the government to not pay all of the bondholders.
Sources connected to the case told LA NACION that the hearing in which the court of appeals had to listen to the position of the Economy Ministry, the litigating vulture funds and the US government turned out to be “tough” for Argentina’s attorneys.
"It was worse than expected and the chances grew that the government will lose,” they admitted.
The judges from the New York court have in their hands this case filed by the vulture funds Dart, Elliott and Aurelius; if they rule in favor of the plaintiffs, it would completely complicate the payment of bonds to creditors that accepted the swaps to exit the default in 2005 and 2010.
"Why would someone who can read lend money once to Argentina?” said one of the judges, Rosemary Pooler, reflecting the exhaustion of various judges for having to deal with the cases coming out of the Argentine default for more than 10 years.
Despite the litigants not accepting either of the two restructurings that Argentina held, they got Judge Thomas Griesa to rule in their favor in the lower court. The basis of that sentence is the wide application of the pari passu clause, which grants them similar rights and obligations as the bondholders that accepted the swaps.
"Your obligation is to treat them equally,” said her colleague, Reena Raggi, to Argentina’s attorney Jonathan Blackman, of the firm of Cleary Gottlieb Steen & Hamilton LLP. The two judges and their colleague Barrington Parker let it be known that Argentina has not treated all of the creditors in a fair manner, while the government says that the vulture funds are only seeking to litigate.
The crux of the controversy is the “locked-shut law” which allowed the government to make the two aforementioned swaps but closed the possibility of moving ahead with subsequent negotiations with the “holdouts”.
A source from one of the investment banks that is negotiating Argentine bonds in the U.S. told LA NACION from New York that, before the end of the year, the court could hand down an “intermediate” decision.
"The greatest probability is that the court is inclined to refute a wide interpretation of the pari passu clause in favor of the creditors, but could find that the ‘locked-shut law’ operates in a discriminatory manner,” the source said.
A government source was more blunt: “If the judges make this swap collapse, all of those that could come forward in Europe will collapse and for that reason the Department of the Treasury, which is against many of the decisions we make, supported us through a brief of amicus curiae.”
On that, Blackman said before the judges that the upholding of Griesa’s ruling would be a “nuclear bomb.”
After the hearing, the ambassador to the United States, Jorge Arguello, said that the holdouts “made a bad deal” by falling out of the swaps, but admitted that their actions in the U.S. courts “complicated and set back the process of finalizing the restructuring agreement.”
Clarin
U.S. court decides if the vulture funds will have to be paid
Wednesday, July 25, 2012
By Ana Baron
For Judge Griesa, if the bondholders are honored that money will have to be shared with others.
The vulture funds argue that by not paying them, Argentina is discriminating against them. And the Argentine government argues that paying them in full on the bonds in default that they hold would itself be discriminating against the bondholders that entered the swap and accepted a haircut. Who is right? During the hearing held on Monday in New York, the Court of Appeals seemed inclined towards the vulture funds when they questioned if it was just that Argentina is paying some creditors and not others.
What is in play is a ruling by Judge Griesa who, on February 23, found that when the Argentine government pays installments to the bondholders that entered the swap of 2005 or 2010, the bondholders will have to share that payment with the vulture funds.
During the hearing on Monday, Argentina asked for this ruling to be overturned.
If the Court of Appeals does not reverse it, the two swaps held by the government could unravel. According to Griesa’s decision, those charged with splitting the money between the bondholders that entered the swap and the vulture funds will be the international banks that normally pay the maturities. And if, for example, Deutsche Bank refuses to divide the money with the vulture funds, they could be sued.
During the hearing on Monday, a three judge panel of the Court of Appeals for the Second Circuit of New York questioned Argentina’s argument that it is not discriminating. “Your obligation is to give them all the same status,” said Judge Reena Raggi. According to her, “it’s difficult to say that by paying one group of bondholders and not others, you achieve that.”
Argentina’s attorney, Jonathan Blackman, explained that 92% of the bondholders have entered in the swaps and the fact that a debt is not being paid doesn’t mean that the funds that didn’t enter in the swap are being disadvantaged.
It all depends, in fact, on how the pari passu clause is interpreted, the clause included in the bond contracts in default in 2001 that states that all the bondholders should be treated equally. Griesa interpreted that clause to be equivalent to the so-called sharing clause, which states that all have to share in the payments that the government makes.
“Argentine bonds don’t have a sharing clause,” explained Adam Lerrick, an expert in debt restructuring from the American Enterprise Institute, to Clarin. But as Griesa thinks that pari passu and the sharing clause are the same, not only should all the bondholders be treated equally, but also if there is a payment it has to be shared.
Telam
Arguello: “The debt swap was positive for Argentina and for the bondholders”
By Melisa Cabo
The ambassador in the United States said "the debt swap was positive for Argentina and for the bondholders” at the same time pointing out that the vulture funds that rejected the swap offer in 2005 “lost the chance to make money.”
The ambassador also sais that "the restructured bonds showed a performance that was superior to debt bonds in dollars from emerging markets (70%) and the average gains from stocks around the world that was 24%” and that this even placed them above the yields from commodities.
Argüello made these statements in the eighth edition of the newsletter put out bi-weekly from the diplomatic headquarters in Washington and that on this occasion included an extensive technical report in its questions-and-answers section about the history, evolution and yields on restructured bonds from the 2005 swap.
In the research report that is presented “to the three branches of the U.S. government, we show how the creditors that entered the swap in 2005 and held their bonds and coupons attached to GDP received yields of around 90%.”
This shows that “the debt swap was positive for Argentina and for the bondholders,” the ambassador said.
In turn, the vulture funds “that rejected the Argentine offer of the debt swap in 2005 not only lost the chance to make money but add to that the millions that they have spent on lobbying and costly publicity campaigns directed at the failure of the swaps,” the diplomat said.
In this manner, the report called “Evaluation of the first restructuring offer of Argentine debt: It wasn’t a bad deal after all,” highlights “two innovative elements” that Argentina included in the restructuring process and that “have served as an example for the international financial community.”
On one side, there is "the ‘Most Favored Creditor Clause’ (MFC) which sought to reassure bondholders who agreed to undertake the exchange offer in the understanding that they would be protected in case Argentina gave more favorable terms to other creditors at a later date."
The second consisted of the inclusion of “a GDP-linked coupon or warrant proving that Argentina acted in good faith and was enthusiastic to share with creditors the benefits of an economic recovery.”
As a result, the final participation of the swap reached “an outstanding 76.1%” coming after “only 3 years after its default and way down the average registered in past restructuring processes (7.4 years), Argentina secured the best public debt restructuring in history.”
For its part, according to estimates from Morgan Stanley, “creditors who tendered their bonds in 2005 and held on to
the new securities (including the GDP-linked coupons) since then, have received returns of about 90 percent,” meaning that “the restructured securities have outpaced the 70 percent return on emerging-market dollar debt and
24 percent gain in global stocks.”
In this sense, taking into account the haircut achieved by Argentina, “the holders of Argentine bonds that entered the swap of 2005 have had an annual rate of return of more than 5%, a rate higher than international inflation,” the report from the embassy in the United States concluded.
The eighth edition of the newsletter also includes an article written by Justice Minister Julio Alak, who addresses the measures taken to combat money laundering and terrorism in Argentina.
Also, it contains an analysis of Jorge Arguello called “the vulture funds play dirty even in the Capitol” and wraps up with the showing of paintings called “United Colors of HIV” by Argentine artist Fabián Ríos Rubino, presented at the Argentine embassy since September and in parallel to the International AIDS Conference 2012 being held this week in Washington.
MercoPress
Tuesday, July 24, 2012
Argentina asked a US federal appeals court to reverse lower-court rulings that could help creditors including Elliott Management Corp.’s NML Capital Fund collect on 1.4 billion dollars in defaulted bonds.
Argentina, which defaulted on 80 billion dollars in foreign debt in 2001, argued that US District Judge Thomas Griesa in Manhattan was wrong in holding that a provision in the bonds bars the Republic from paying bondholders who agreed to debt restructurings in 2005 and 2010 before it pays creditors who refused to take the deals.
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