Gesamtzahl der Seitenaufrufe

Samstag, 31. Mai 2014

Solving the remaining dispute with holdout creditors including billionaire Paul Singer’s Elliott Management Corp. is becoming more urgent with foreign-exchange reserves stuck near an eight-year low. Photographer: Jacob Kepler/Bloomberg

Bloomberg News

Argentina Leaves Singer for Last in Preparing Bond Market Return

May 30, 2014

Billionaire Paul Singer
Solving the remaining dispute with holdout creditors including billionaire Paul Singer’s Elliott Management Corp. is becoming more urgent with foreign-exchange reserves stuck near an eight-year low. Photographer: Jacob Kepler/Bloomberg
Accords with the World Bank, Repsol SA and now the Paris Club have put Argentina on the cusp of returning to international bond markets. The country has left the toughest deal for last.
After a 20-hour meeting with officials from the Paris-based group of creditor nations, which kept President Cristina Fernandez de Kirchner awake until 2 a.m., Argentina said yesterday that it agreed to pay $9.7 billion over five years to settle claims stretching back to the government’s record $95 billion default in 2001. South America’s second-biggest economy hasn’t issued bonds in international markets since it stopped payments.
Solving the remaining dispute with holdout creditors including billionaire Paul Singer’s Elliott Management Corp. is becoming more urgent with foreign-exchange reserves stuck near an eight-year low. Argentina needs the money to fund investment, defend its currency and make payments on restructured bonds, while any proceeds from a U.S. bond sale could be seized by creditors backed by court orders saying they’re owed billions.
“It’s clearly positive that Argentina finally resolved this issue” with the Paris Club, said Jorge Mariscal, chief investment officer for emerging markets at UBS Wealth Management in New York. “The big obstacle to tackle is still the holdouts.”
Before reaching the Paris Club accord, Argentina also settled claims with five companies in the World Bank arbitration arm, improved economic data reporting at the request of the International Monetary fund and compensated Spanish oil company Repsol for the seizure of YPF SA two years ago.

Holdout Creditors

Since succeeding her late husband as president, Fernandez has imposed the harshest currency controls since the aftermath of the 2001 financial crisis and nationalized $24 billion in pensions and the country’s flagship airline Aerolineas Argentinas SA.
The extra yield investors demand to own Argentine bonds over U.S. Treasuries, at 8.27 percentage points, is the highest in emerging markets after Venezuela. The so-called spread narrowed four basis points at 11:28 a.m. in Buenos Aires.
About 93 percent of creditors accepted losses of 70 cents on the dollar in the country’s 2005 and 2010 debt restructurings, while other holdout investors, including Elliott, sued for better terms.

‘Serial Predators’

“There’s just 7 percent of creditors left who haven’t voluntarily restructured their debt, and of that 7 percent there’s 1 percent that are vulture funds that have promoted lawsuits in the U.S.,” Cabinet Chief Jorge Capitanich said yesterday during a press conference in Buenos Aires. “We have a final step so that either via the judicial system or voluntary agreement we can end this process of restructuring our debt.”
Fernandez called the holdout hedge funds “serial predators” during a speech yesterday.
In a bid to enforce $1.7 billion in court judgments Argentina refuses to pay, Singer in March sued the country and Elon Musk’s Space Exploration Technologies Corp. for rights to two launch-services contracts owned by the South American nation and in 2012 tried seizing a naval vessel docked in Ghana.
The hedge fund also has a case against the nation before the U.S. Supreme Court. The court justices may decide as soon as next month whether to review lower court orders requiring Argentina to pay holdouts in full when it makes payments on restructured bonds.
Argentina said in a May 27 filing it would require $15 billion to pay all holdouts.

‘Sit Down’

“Like its obligations to the Paris Club, Argentina has had obligations to private creditors outstanding for over a decade,” Jay Newman, a senior money manager at Elliott, said in an e-mail. “Argentina should finally sit down and negotiate with its private creditors, who stand ready to reach a good-faith resolution.”
Without an accord with the holdouts, it’s too costly for Argentina to issue bonds abroad, according to Vladimir Werning, head of Latin America research at JPMorgan Chase & Co.
“The political embarrassment of locking in current double-digit yields remains a constraint for the sovereign to issue,” Werning said in a telephone interview from New York. “The main hurdle before the government would actually embrace market access is the private creditor holdout problem.”

May Losses

Argentine bonds have slid 1.5 percent this month, pushing their average yield to 10.9 percent as investors shift away from the country’s securities before the U.S. Supreme Court decision, which could cause a default.
That comes after a rally that’s handed investors returns of 40 percent over the past year as Argentina improved relations with international investors and took steps to improve its economic imbalances.
Yesterday the country’s bonds due in 2033 jumped more than 1 cent on the dollar to 77.75, the first increase in 10 trading days and the most in three weeks.
The accord with the Paris Club was largely reflected in bond prices before the announcement, according to Mauro Roca, a senior Latin America economist at Goldman Sachs Group Inc.
“It’s not a game-changer,” Roca said in a telephone interview from New York. “It doesn’t mean that Argentina can now return to markets. This will happen once the holdouts issue is resolved.”

Credit Lines

The Paris Club agreement will also diminish reserves as the country relies on them to make payments, Roca said. That may be partly offset by inflows from credit lines. The accord allows Paris Club members’ export credit agencies to resume lending to Argentina, the group said in a statement.
The agreement with the Paris Club may also help shore up swap lines with other countries’ central banks, JPMorgan’s Werning said.
Moody’s Investors Service, which cut the country’s credit rating to seven levels below investment grade in March, won’t upgrade it from Caa1 until those inflows have materialized, said Gabriel Torres, an analyst at the company.
“We’re not incorporating this as a positive until we hear about more money coming in,” Torres said in a telephone interview from New York. “But at the very least this hangover is gone.”
Argentina still needs to improve its fiscal accounts, curb inflation and boost reserves for a credit upgrade, Shelly Shetty, the head of Latin American Sovereigns at Fitch Ratings Ltd., said in a telephone interview from New York.
Last year, Argentina’s central bank reserves fell $12.7 billion.
Plans to issue debt will depend on needs to finance specific development projects, Argentine Economy Minister Axel Kicillof said yesterday.
“No one can live just off cash,” Kicillof said.
To contact the reporters on this story: Camila Russo in Buenos Aires at; Katia Porzecanski in New York at
To contact the editors responsible for this story: Brendan Walsh at Daniel Cancel

CLEARY GOTTLIEB STEEN & HAMILTON LLP May 2, 2014 MEMORANDUM FOR THE MINISTER OF ECONOMY AND PUBLIC FINANCE Re: Possible results of the certiorari petition and related issues regarding the debt agreement

May 2, 2014

Re: Possible results of the certiorari petition and related issues regarding the debt agreement

You have solicited a memo from us that deals with (i) the possible results of the cert petition of the Republic of Argentina pending before the US Supreme Court in which a review of the Second Circuit decision is requested, (ii) the options in the event that the petition is denied, and (iii) the legal questions related to a potential settlement of the defaulted debt outside of the legal process.
I. Possible results of the certiorari petition
As you know, on February 18, 2014, the Republic presented its certiorari petition in the pari passu case. NML solicited and obtained an extension of the deadline to present its brief in opposition from March 24 to May 7, 2014.[FN 1]. The rules of the court do not impose a deadline for the presentation of the briefs in response, but for such briefs to be effective, it's necessary that the Justices and the clerks have them when they are considering the petition. The Republic's cert petition will be circulated among the Justices on May 27, 2014, so we will present our response that day or just before. The Justices will consider the petition in an internal conference, probably June 12, 2014<x-apple-data-detectors://4>. In the conference, the judges will vote over whether to (i) grant the petition, (ii) solicit the opinion of the Solicitor General, or (iii) deny the petition. [FN 2]. If the SC grants the petition, the Court could announce their decision during the day of the conference. If not, the Court would release an order with their decision the following Monday that, in the event of a conference on June 12<x-apple-data-detectors://5>, would be June 16.<x-apple-data-detectors://6> In the event that the Court grants the petition, shortly thereafter it would set a timeline for the presentation of briefs so that the case would be heard the following Court session, which opens October 2014. In this case, the Court would be issuing a decision in roughly June 2015.
If the Court solicits the SG's opinion, the case would essentially be suspended until he presents his brief. The SG does not have a formal deadline for submitting his brief, but they usually submit such briefs in August, December, and May, so as to fit the Court's schedule. It would seem most likely in this event that the brief be submitted in August or December. Once the US has submitted its brief, and assuming it does so in support of the Republic (which would be consistent with its position in the Second Circuit), the litigants would have a brief period in which to submit their brief in response before the cert petition is circulated for another conference at the Court. After that, it is likely that in a short time the Court would release a final decision on the cert petition. If the SG presents his brief in December or before and the Court grants the Republic's petition, the oral hearings would be set for 2014 or early 2015, and it would be likely that the Court would issue a final decision about the substance of the case in June 2015. lf the SG submits his brief in May 2015, we would have a decision over the cert petition in June 2015, but the decision over the substance of the case would occur in the following Court session.
If the Court denies the cert petition, this would essentially end the appeal. As we have recently discussed in the reunions we have held, it seems to Paul Clement and to us that a denial of the cert petition in the first opportunity that the Court has to deal with the case is the least likely scenario, but it is not impossible. If the Court denies, we could present a petition for a rehearing before the Court
emphasizing that the next debt payment is nearing, which would give the Court a final clear opportunity to avoid triggering a default These requests are virtually always denied. If we were to present such a petition, the deadline to do so would be 25 days after the date the cert petition is denied, but we would probably have to present before then because our adversaries would certainly run to Judge Griesa and argue that the stay (the order by the Second Circuit suspending the effects of the pari passu decision) should be lifted so that the Republic must pay them in their totality when they make the next debt service payment on the restructured debt on June 30.<x-apple-data-detectors://7> In response to this, we could argue that the stay is still valid in virtue of the petition for rehearing by the Republic. In the past, Judge Griesa has in some cases showed restraint in dealing with questions that are still in process before higher courts.
ln the event that Judge Griesa determines that the stay is no longer valid, we could also request that Griesa and/or the Second Circuit delay the execution of the pari passu order until after the June 30<x-apple-data-detectors://8> debt payment has passed. Such a petition would have to be accompanied by demonstrations by the Republic that it needs additional time to comply with the pari passu orders and pay the debtors or to be able to carry on with settlement negotiations with them. If the Republic does not offer enough evidence on this issue, the most likely result is that Judge Griesa and the Second Circuit would take the posture that the pari passu orders should enter into effect because they stay became no longer valid when the cert petition was denied.
II. Options if the certiorari petition is denied
If the cert petition is denied, the Republic will have only three options:
The first option would be to pay the debt held by the holdouts entirely before the next deadline for payment of the restructured debt. Although the pari passu order would be technically satisfied if the total was paid only to NML, Aurelius, and the other litigants for whom the orders were issued, it is highly likely that the majority or all of the other litigants would immediately solicit and obtain similar orders as soon as the SC denies the cert petition. Furthermore, the legal reasoning of the Second Circuit to confirm the pari passu orders would require the Republic to pay all of the accumulated debt in default at the same time it pays NML, Aurelius, etc. Even beyond the policy of the Republic of not giving preferential treatment to the holdouts, we understand that the Republic does not in any event have the necessary resources to handle these payments at the same time it makes the payments on the restructured debt.
The second option would be to try to reach a settlement with NML and other holdouts. Keeping in mind the probable time periods between the denial of cert and the scheduled date for the next payment of restructured debt (June 30<x-apple-data-detectors://9>), it's difficult to predict if the time that it would take to lift the stay would allow the Republic to make the payments on restructured debt so that it has enough time to negotiate a deal. Of course, it is not clear what terms would be acceptable for the other side in this situation, and it's likely that they would demand an extremely high percentage of their claim, whether the funds for an agreement come from the Republic, the holders of restructured debt, or both. Furthermore, keeping in mind that the reasoning of the Second Circuit in their pari passu decision gives every holdout the right to veto the payment to any of the other holdouts, it's likely that, unless the settlement is struck with all of the creditors at the same time, any settlement with a given creditor would create a floor, above which the other creditors would demand greater benefits, without any mechanism requiring the creditor to accept anything less than 100 percent. In Section II below, we
consider some of the legal questions that could emerge in the context of the various settlement scenarios.
The third option would be not paying the holdouts nor the holders of restructured debt, triggering a default ordered by the courts. After such a default, the Republic would not face any legal restriction that prohibits it from restructuring all of the debt in default, both the old and the new debt, and there are ways that this could be done which would not violate the pari passu clause as interpreted by the Second Circuit.
III. Legal issues related to the potential settlement of the defaulted debt
You have informed us that various creditors and investment banks seeking to have a role in the resolution of the pari passu litigation have approached the Republic. We do not know the specific details of such a proposal. Nevertheless, we understand that they are based on the following models.
(i) the so-called "Gramercy Proposal'. In this model, a group of creditors would negotiate with NML a settlement so as to arrive at a haircut that is acceptable to them. Gramercy would then lead the process to amend the bonds issued in the swaps in 2005 and 2010 so that the holders of performing debt would cede part of the value of their bonds to NML (and presumably other holdouts) so that they receive the sum they demand under a new agreement. It has been suggested that it would be necessary for the Republic to "sweeten" the deal so that an entity of the Republic indirectly contributes funds. Then the government would carry out a swap offer consistent with the 2010 swap, so that the sum of the debt offered by the holders of restructured debt, plus the funds that the government entity and the "package'' from the 2010 swap, would be enough to reach a deal with NML and the other holdouts, and
(ii) the "intermediary" proposal through which an investment bank would help the Republic negotiate a settlement.
What follows is an analysis of the issues presented by each of these models.
A. The Gramercy Proposal
It would seem that the Gramercy Proposal would be more difficult to execute successfully. The premise that the bondholders would renounce part of the value of their bonds so that others desist in their litigation has never been put to the test. Furthermore, to arrive a value that would resolve all of the litigation that is currently pending, it would seem that funds would have to be obtained beyond the ceded bonds of current bondholders. If the funds came from an entity controlled by the Republic, it is likely that this would become public and the creditors of the Republic would make claims of alter ego and of a lack of consistency in its previously adopted postures. Finally, and most importantly, it's difficult to reach the threshold of 75 percent of the pending sums of each bond to amend every series of bonds and the 85 percent of all the total pending sums plus 66.6 percent of each corresponding bond to make possible a "cramdown'' through an aggregated vote.
We also note that although we are not familiar with the particular details of how the Gramercy Proposal would be implemented, it would present a very challenging structure. At a minimum, Argentina would have to carry out an international restructuring issue. This would mean in practical terms having to register an issue in the US, Europe, and Japan. Although this could be done, it's likely to take time and it
implies responding to disclosure requirements by the regulators, which would be challenging given the political position of Argentina.
As far as the litigation strategy, Paul Clement has suggested that if the Court in any way suspects that the pari passu problem could be easily remediated through a creditor solution, it's possible that the Court would refuse to take the case. For that reason, the Republic must be extremely about not giving the public impression that it is working on a solution between creditors before the Court resolves the cert petition.
B. Intermediary proposal
Although we are not up to speed on the details, we understand that various institutions have offered to negotiate with NML and other creditors. There are at least two important factors to keep in mind in any intermediary arrangement based on bonds. First of all, carrying out a swap offer in terms that are better than those in 2005 and 2010 could violate the RUFO clause (Rights Upon Future Offers) of the bonds already issued. The Republic could complete a judicial settlement based on bonds, but in this case we should consider if the intermediaries think they could bring the bondholders to the agreement, or if they would have to in any way "go out and sell" the deal. Second, even if the agreement issuccessful in terms of achieving the acceptance of a majority of the Republic's creditors, any creditor that remains outside the deal would have the possibility initiating a new pari passu case and obtaining an injunction impeding the payment of all of the current external debt.
For this reason – that is, that any deal that is reached, no matter how successful it is, will allow creditors outside the process to use the Second Circuit's pari passu precedent to obtain an injunction that interferes with performing debt – it would currently seem that any type of deal would not modify the problem that NML has set off.
It's for that reason that we think that, without having a the Supreme Court accept a review of the lower court's decision, the best option for the Republic could be to permit the Supreme Court to force a default and then immediately restructure all of the external bonds so that the payment mechanism and the other related elements are outside of the reach of American courts.
Argentina wants to continue paying its restructured debt. The Courts, nevertheless, have placed it in a terrible position. In a position that, unless it is reviewed by the Supreme Court, would seem to be obligating Argentina to default, because none of the intermediate agreement options resolve the dilemma created by the courts when they gave each one of the holdouts the right to interrupt payment to the rest.
We hope that the above will be useful. Please do not hesitate to contact us with any question or comment on the issues we have analyzed.

Carmen Amalia Corrales
Carmine D. Boccuzzi
Jonathan I. Blackman

Argentina says no plan to evade U.S. courts in creditor case

Argentina says no plan to evade U.S. courts in creditor case

NEW YORK Fri May 30, 2014 8:39pm EDT


(Reuters) - Argentina's lawyers sought Friday to assure a U.S. judge it would not evade orders to pay $1.33 billion to bondholders who refused to accept its debt-restructuring offers if the U.S. Supreme Court declines the case.
U.S. District Judge Thomas Griesa in New York questioned lawyers for Argentina about a leaked memo described as advising on a plan for how to restructure its bonds outside the reach of U.S. courts if the Supreme Court does not take the case.
Carmine Boccuzzi, a lawyer for Argentina at Cleary Gottlieb Steen & Hamilton, acknowledged the memo was real. He said while it did address whether Argentina may need to restructure in a way consistant with U.S. court orders, that was "not the upshort of the memo."
"There is no secret plan to evade," he said.
Boccuzzi added there "likely would be a default" if the lower court rulings remained in place, saying "there would be a cataclysmic result from an affirmance of the order."
The U.S. Supreme Court is scheduled on June 12 to consider whether to hear Argentina's appeal of rulings requiring it to pay the holdout bondholders back in full.
The holdouts' case is the last hurdle to the country putting its 2002 default on $100 billion in debt behind it and regaining full access to international credit markets.
Argentina on Thursday clinched a landmark deal with the Paris Club of wealthy creditor nations to repay its overdue debt worth nearly $10 billion.
After the default, creditors holding about 93 percent of Argentina's bonds agreed to participate in the swaps, in 2005 and 2010, accepting between 25 cents and 29 cents on the dollar.
But bondholders including NML Capital Ltd, a unit of billionaire Paul Singer's Elliott Management Corp, and Aurelius Capital Management went to court seeking payment in full.
The hearing Friday stemmed from the publication in an Argentine blog of portions of a May 2 memo by Cleary Gottlieb that advised the country on options if the Supreme Court did not take the case.
The memo posted online said the "best option" for Argentina would be to let the Supreme Court force a default and then restructure its bonds so the payment mechanism was outside U.S. court jurisdiction.
Robert Cohen, a lawyer for NML, argued the memo "requires the immediate attention of the court."
He argued the judge should rule it was not protected by attorney-client privilege, find the county violated the court's orders and force Argentina to disclose its plans.
Boccuzzi, while not confirming many details of the memo, said it also laid out "possible settlement scenarios," adding there was no plan to evade the U.S. courts' jurisdiction.
But Judge Griesa noted another lawyer at Boccuzzi's firm had previously told a U.S. appeals court Argentina “would not voluntarily obey” his injunctions even if upheld.
"All that's ever been done by Argentina is to refuse to pay its just obligations," he said.
The case is NML Capital et al v. Republic of Argentina, U.S. District Court, Southern District of New York, No. 08-6978.
(Reporting by Nate Raymond in New York; Editing by Lisa Shumaker)

Freitag, 30. Mai 2014

Recalcitrant, moi? Joseph Cotterill

Recalcitrant, moi?

Argentina made a deal with the Paris Club on Thursday. A mere 13 years after defaulting on them.
The scheme offers a framework for a sustainable and definitive solution to the question of arrears due by the Argentine Republic to Paris Club creditors, covering a total stock of arrears of USD 9.7 billion, as of 30 April 2014. It provides a flexible structure for clearance of arrears within five years including a minimum of USD 1150 million to be paid by May 2015, the following payment being due in May 2016…
And yes, this means something to the pari passu saga.
It means that a deal with holdouts is a matter of time.
This isn’t obvious, true. After all note that the settlement only requires one payment to former official creditors in advance of Argentina’s next presidential election, which is in October 2015. Also, overall, the Paris Club debt would be paid off over five years. (In cash or Argentine paper?)
In other words, Argentina’s economy minister went to Paris to replenish FX reserves in the long term, by inching the country toward a full return to international debt markets. But the structure of the agreement means there’ll be relatively little pressure on central bank reserves used to pay debt in the meantime.
Which is just as well, really — considering that Argentina’s central bank is being used as a piggy bank by the government more than ever.
BofAML for example notes that a record $2.2bn (in pesos) passed from the BCRA to government hands in the first three months of this year, in the form of transferred profits or short-term loans. That’s versus $815m worth in the same period in 2013.
Since BofAML also thinks that overall deficit financing by the central bank will be $15bn in 2014, even as the BCRA says that its reserves will shrug off their $15bn drop in the last year and a half and enter 2015 at above $28bn… we think something’s going to give to get that full market access at last, free of litigation.
Which brings us to the latest statement by the republic’s lawyers in order to get the US Supreme Court to take up the pari passu case. (A decision is imminent — even if the Court just asks the US government to weigh in before actually deciding a few months later.) We’ll pick Argentina’s arguments apart properly in another post later (it’s framed as a reply to the holdouts), but frankly, they’re looking a bit clapped-out.
In particular, note how big a bill that Argentina thinks it’ll be facing if the Court rejects the case, activating a requirement to pay holdouts ratably, alongside everyone else:
Contrary to Respondents’ assertions, absent relief Argentina will comply with the injunctions; though, since Argentina lacks the financial resources to pay the holdouts in full (what would amount to $15 billion) while also servicing its restructured debt to 92% of bondholders, Argentina will have to face, objectively, a serious and imminent risk of default…
Sure, $15bn sounds like lot: the miracle of post-dated interest, which is by far the majority of the holdout claims. But it’s not as big as some of the numbers which Argentina was telling lower courts last year…
The Amended Injunctions would prompt claims equal to more than $43 billion in principal and interest of defaulted and restructured debt – an amount greater than the entirety of the Central Bank’s reserves. This would create both a legal and economic impossibility and serve no purpose other than to create crisis…
Then the entirety of the central bank reserves. This was in February 2013. Arguably Argentina had a good legal point with the bigger number, in fact, as it was referring to a whole universe of bond holdouts that are watching Elliott’s success and may filetheir own pari passu claims, if they have the wherewithal to litigate. After all that is kind of the logic of ratable payment.
But the bigger number seems to have fallen away a bit. And the $15bn is an in-fullnumber, versus what a settlement might involve.
Of course to get the holdouts to talk and to create some negotiating leverage, Argentina might have to demonstrate its willingness to go ahead and default and/or swap systems for payments on its restructured bonds so that they can’t be injuncted on their way through New York.
To that end, here’s something interesting to end on: a purported letter from Argentina’s lawyers to the government which has appeared in the Argentine press. It talks about…
las opciones para el caso que el pedido de certiorari sea denegado, y… las cuestiones legales relativas al potencial arreglo de la deuda en default por fuera del litigio
Arreglo means settlement. Although we’ll leave the below as a translation exercise…
A settlement, maybe — but a tumultuous route on the way, probably.
Related link:
End of the pax cambiaria? – Economist