Delivered by Cleary Gottlieb on Monday — and freshly tweeted by La Presidenta. Click to enlarge:
This is after Judge Griesa appointed an experienced lawyer (‘Special Master’ — cool title: it’s Daniel A Pollack, pictured below) to oversee negotiations.
Argentina would want a stay on the order to pay holdouts in order to get through a June 30 payment date on restructured bonds without incident. Although technically it would have a month’s grace to pay: plenty of time to negotiate, if you believe what a lawyer for the holdouts told Judge Griesa last week.
But for now look beyond whether a stay gets granted. Think about what a ‘good faith’ offer to holdouts from Argentina might actually involve.
Payment in full (ratably alongside restructured bondholders) is, naturally, already ruled out in the above. A proposal giving the holdouts the same restructuring terms as everyone else (after all this time and litigation) appears to be what the government is thinking, given the reference to what its own laws allow it to do.
That’s highly unlikely to convince litigants who now have some of the most legally advanced tools of sovereign debt enforcement ever: not just pari passu itself, but also enhanced ability to track down assets. Even if these tools still can’t force Argentina to pay — more on that later — they could make future borrowing very tricky.
Thus, in terms of reaching a settlement somewhere in between…
1) Observe how Argentina mentions its recent deal with Paris Club creditors (other governments on whom it defaulted too) among examples of settlements which showed “good faith” but also “necessary haircuts”.
That’s funny. Because the Paris Club probably didn’t much of a haircut at all on their $9.7bn.
Argentina will eventually pay back their principal in full, over half a decade. It will pay interest at 3 per cent. Compare that to the discount rate which the Paris Club governments will be using to determine present value of cashflows — something called the Commercial Interest Reference Rate, as provided by the OECD. By roughly applying the blend of currencies in the Paris Club debts — some yen here, some euro there — this rate is also, probably, about 3 per cent. So the net present value is likely to be close to zero.
Whack up the discount rate to something higher (such as Argentine bond yields around 10 per cent) and the haircut still isn’t huge — perhaps 80 per cent in extremis.
If Argentina is waving the Paris Club deal around before Judge Griesa, expect holdouts to respond accordingly. They would love a deal as good as that. The Paris Club does insist on comparability between the treatment of official and private debts. This insistence is generally one-way: official must never be subordinated to private. Although as a test case…
2) Last but not least, the Rights Upon Future Offers clause in Argentine restructured debt. This gets used in Argentina’s letter, essentially to imply that holdouts can’t get better terms than the restructured bondholders, without those terms also being offered to the latter. Which is the broad meaning of the clause.
Except that’s the broad meaning. It’s something of a zombie myth in the pari passu saga. There are powerful caveats — we noted them here. The language allows Argentina to “involuntarily” make a deal with holdouts. Meanwhile, the prospectus in which the clause is found also refers to possibility of a holdout ‘settlement’. Interestingly, Mark Weidemaier wonders if Argentina’s behaviour has helped the ‘involuntariness’ of any subsequent settlement.
These might be the legal defences if restructured bondholders really were absolutely determined to sue for their piece of a holdout payoff. Except they won’t be. Argentine bonds are already likely to take off on any settlement: simply look at a Bloomberg screen for how prices have responded so far to CFK’s U-turn. Investors could forgo these gains, and sue the Argentine state for years on end without certainty of victory. Just like the holdouts did. But… why?
Keine Kommentare:
Kommentar veröffentlichen