Me-too holdouts could demand US$4.7 billion // wir sind auch me-toos....

aturday, November 8, 2014

Me-too holdouts could demand US$4.7 billion

US District Judge Thomas Griesa must decide whether to accept the new ‘me-too’ holdouts

Country’s lawyer says demands for similar rulings create ‘impossible situation’

A total of 52 holdout creditors holding US$4.7 billion in debt are preparing to demand immediate payment, new court filings in New York show.

The creditors in more than 100 lawsuits are seeking the same terms that US District Judge Thomas Griesa granted to hedge funds that spurned Argentina’s debt restructurings in 2005 and 2010, and then sued for full repayment of US$1.33 billion plus interest.

Considering the previous claims against the country, there is at least US$5.7 billion in play, and that is without counting the inevitable interest.

In a letter to Griesa, Carmine Boccuzzi, a lawyer for Argentina, argued many creditors should be barred from seeking such relief because they already have court judgments ordering Argentina to pay them money.

Under federal law, creditors that have already secured judgments cannot also ask for an injunction in order to enforce them, Boccuzzi said.

“This escalation of legal action initiated by the plaintiffs not only shows that the rulings of Judge Griesa cannot be fulfilled but also... that the solution to the crisis must involve all bondholders who rejected the bond swaps,” Argentina’s Economy Ministry said in a statement.

Earlier this week, Griesa granted his court-appointed mediator, Daniel Pollack, the authority to include other holdouts in negotiations in an effort to find a global settlement.

Boccuzzi’s letter came in response to earlier correspondence from Robert Cohen, a lawyer for one of the holdout hedge funds, NML Capital, that said 52 plaintiffs would be seeking an injunction, according to Boccuzzi.

Among these are Bracebridge Capital, which on Thursday announced bonds worth US$1.3 billion and the GMO Fund which is seeking US$253 million plus interest.

Aside from the hedge funds, the other holdout creditors are a mix of individual and institutional investors from around the world.

Should Griesa accept the “me-too” creditors, Boccuzzi requested a minimum six-week period in order for the country to be able to respond to the new claims. A six-week period would bring the situation close to the December 31, 2014 deadline for the RUFO clause.

Argentina has argued it cannot negotiate a settlement on better terms than what was given to the exchange bondholders because of the restructuring agreement’s “Rights Upon Future Offers.”

This clause, which is set to expire on December 31 of this year, specifies that the government must offer its restructured creditors — who agreed to steep discounts on the amount owed to them in order to receive fresh bonds in 2005 and 2010 — the same terms as any posterior debt deals. The government fears than an improved offer to the holdouts would trigger massive claims from these creditors that far surpass the existing capacity to pay. Approximately 93 percent of the debt in question is held by restructured creditors.

Ongoing battles

Cohen’s letter has not been publicly filed. An NML spokesman did not immediately respond to request for comment.

Argentina in July refused to honour Griesa’s orders that it must pay the holdout hedge funds, led by NML Capital and Aurelius Capital Management, at the same time it pays bondholders who participated in the debt exchanges following the country’s earlier 2002 default. That order came after the US Supreme Court declined to hear Argentina’s appeal of Griesa’s ruling and settlement talks went nowhere.

The judge subsequently blocked Bank of New York Mellon Corp (BoNY) from processing a US$539 million payment that Argentina destined for its restructured creditors, resulting in a legal limbo. The country then passed legislation that allowed it to remove the BoNY as its fiduciary agent and establish local payment mechanisms for its restructured creditors for Par bond payments. Cabinet Chief Jorge Capitanich recognized this week that none of the creditors availed themselves of that mechanism.

Earlier this week, Griesa granted his court-appointed mediator, Daniel Pollack, the authority to include other holdouts in negotiations in an effort to find a global settlement that goes beyond the hedge funds’ dispute.

Roughly 60 cases are before Griesa involving US$10 billion in claims from holdout investors. A footnote in Boccuzzi’s letter said holdouts have filed 25 lawsuits just since mid-June totalling US$4.7 billion in claims.

Argentina has said it cannot afford to pay all of the claims, a point Boccuzzi emphasized again in his letter in reference to the claims Cohen cited.

“Even that amount understates the full extent of the republic’s exposure... as additional billions of dollars of defaulted republic debt remains outstanding on top of those claims,” Boccuzzi wrote.

Boccuzzi also noted that the roughly US$28 billion held in reserves at the Central Bank should be directors towards preserving macroeconomic fundamentals and that as such there weren’t equitable grounds to oblige the country party with such a large amount of money.

Griesa held Argentina in contempt in September for defying his orders to pay the holdout creditors, though he has not yet decided what sanctions to impose. The country has appealed that ruling, which is currently making its way through the courts.

Argentine Economy Minister Axel Kicillof told Mexico’s La Jornada newspaper on Monday that the chances of a deal will improve when the RUFO clause expires at year’s end. By the same token, he told Argentine television outlet C5N later this week that the “vulture funds” that bought defaulted debt hoping to receive generous returns are “the Ebola of the financial system.”

The country is also locked in a dispute with Griesa over the payment of local-legislation bonds, not within his jurisdition, that had been blocked by his orders. Griesa has allowed one-off payments of those bonds and is currently reviewing requests to allow future payments.

Herald staff with Reuters, DyN