Update – Midnight UK time: Argentine press was reporting at pixel time that the country’s banks may provide collateral to the holdouts for a temporary stay. Argentina would then use the stay to ask restructured bondholders to consent to waiving the RUFO clause. (Using private banks to pay the collateral would avoid a RUFO trigger.) Also at pixel time, Argentina’s economy minister had entered negotiations in New York — so something was up.
The talks may move quickly into Wednesday. But the emergency stay request in the original post below shows some of the issues here…
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At the eleventh hour…
Click for the request by holders of Argentina’s English-law, euro-denominated restructured bonds for Judge Griesa to stay the pari passu injunction before Wednesday’s default date.
The Euro Bondholders have emerged as one of the most active litigants in the saga in recent weeks. They have argued before Judge Griesa, as in last week’s hearing, that they can help resolve Argentina’s terror — a case of sovereign statuvolism — of incurring Rights Upon Future Offers lawsuits if it settles with holdouts.
Which is the impetus here:
The potential implication of the RUFO clause apparently is making settlement difficult. There are at least two ways, however, that the potential impact of the RUFO clause can be avoided. First, the Republic could undertake a consent solicitation, seeking a waiver of the RUFO clause from the Exchange Bondholders. The Euro Bondholders previously have stated to this Court that they would consider a fair and effective waiver of the RUFO clause if it would lead to a negotiated settlement, and they would be willing to work with the parties and Special Master Pollack on a resolution. Indeed, on July 26, 2014, the Euro Bondholders sent a letter to Special Master Pollack and counsel for the Republic, informing them that the Euro Bondholders and other interested bondholders—together holding over €5.2 billion of euro-denominated bonds—would be willing to waive the RUFO clause…Second, even if the Republic cannot obtain a waiver of the RUFO clause from the Exchange Bondholders, the RUFO clause will not be an obstacle to settlement after December 31, 2014, when it expires. Given that it could take weeks or even months to undertake a consent solicitation, the simpler approach may be to stay the Injunctions until the RUFO clause expires, so that the parties can complete a negotiated settlement after that time.
If Judge Griesa were to stay the order right up until RUFO expiry, as requested in that second option, then it would put the case on hold for almost half a year.
And pigs might fly past his window at the Daniel Patrick Moynihan United States Courthouse first.
Judge Griesa’s desire for a settlement is loud and clear at this point, but he has appeared to regard the RUFO issue as something for Argentina’s negotiators to discuss with the holdouts in the Special Master meetings. Which, given the non-existent state of these discussions, means Wednesday would proceed in “unfortunate” fashion, to use the judge’s words, unless a breakthrough occurs on this issue.
Even so, the interesting thing is that €5.2bn worth of Argentine bondholders are telling the court here that they really would like not to sue Argentina over this clause that exists in their contracts — preferring to waive it.
Again, this might show once more that RUFO is a relatively minor obstacle after all. It might also shed some light on who wanted RUFO protection in Argentina’s 2005 debt restructuring anyway. The republic has argued that creditors wanted it. But its offer in cents-on-the-dollar terms was so poor that Argentina could have been the one that wanted RUFO the most all along, to get creditors to ditch hopes of a better deal and sign up. The largest Argentine bondholder group at the time didn’t want it.
But most of all, if restructured creditors are prepared to loosen their contractual rights because they believe a holdout settlement remains within reach — and bond prices on both sides suggest this thinking — then watch closely on Wednesday.
Because the way things are going without a compromise, they will soon have the right to accelerate their claims on Argentina… post-default.
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