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Freitag, 2. November 2012

Ambito Financiero “How Griesa will apply the formula for payment”


Ambito Financiero
“How Griesa will apply the formula for payment”
 
Thursday, October 31, 2012
 
By  Eugenio A. Bruno, Attorney
 
After the ratification by the Court of Appeals covering the case of Argentina’s bonds in default from Judge Thomas Griesa, who ordered Argentina to pay on bonds that didn’t enter the swap together with those that did, now two key aspects have appeared: how will Greisa’s order be practically applied, and what the government will do, after having said that it will not make payments to the “vulture funds”.
 
Griesa has to resolve how much money the holders of bonds that didn’t enter the swap (holdouts) will have the right to receive when Argentina makes payment in favor of the holders that did enter that operation (hold-ins).  Those that didn’t suffer haircuts already rejected the swaps (and haven’t received payments since the default) while the second group have been receiving payments since the swaps (2005 and 2010) but from bonds that suffered haircuts.
 
In this sense, Griesa could decide that the holdouts collect: (1) all of the payments under the old bonds (which is to say without haircuts); (ii) equal to the hold-ins (which is to say with the same haircuts), (iii) to account for their remittances (less than 100% of what they should collect, but without acknowledging haircuts) or other alternatives.
 
Since the previous decision from Griesa ratified by the Court of Appeals there exists a new situation, but according to the resolution that Griesa must now take, the repercussions will be significant both for the holdouts as well as the hold-ins.  
 
With that the position will appear that the Argentina government will take in the sense of if it will decide to pay out larger payments that are to be made in virtue of the sentences, or if it will not, paying the amount exclusively corresponding to the bonds from the swap (in whose case it would lack money).  Of course the decision is not decisive and there is still the appeal to the U.S. Supreme Court.  But that appeal could be denied (in such case the previous court’s decision would be final) or granted, but with the order that Griesa’s decision be complied with while it is being considered.
 
Thus, both the so-called ‘lock law’ as well as the terms and conditions of the swap bonds impede the government from paying the holdouts the hold-in sums at least that the larger sums are extended to the holders that entered the swaps, which would be very grave for the fiscal situation.  
 
In relation to the posture of the government, and keeping it the same (all would indicate it will), Argentina will have to seek other payment channels to avoid attachments on payments to the hold-ins, and in this sense the current terms and conditions are being applied with who is being called the payment agent, in this case the Bank of New York, and the form of payment.  Basically, the hold-ins have to collect as set forth in the bonds.  Any other mechanism will have to be done with their consent (by a 75% majority of capital of each series of bond issued).  These mechanisms could include a payment into accounts in Argentina for example.  Argentina could eventually pay directly in the country without said consent, which could mean entering into an event of a technical non-compliance or even payment.  Lastly, Argentina could decide not to pay until it has a firm ruling from the U.S. Supreme Court, which would be considered a non-compliance of payment event, or even consider a possibility of making payment on an eventual reserve account until said sentence, but which political aspects will need to be applied by the government.  Regarding the legal aspect, many of these points are interpretive, which could change, as has been seen many times in these years since the 2001 default, and for that it’s very difficult to venture on possible results.  
 
 

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