Tuesday, March 24, 2015

Holdouts play down deal

Citibank Argentina’s headquarters are seen last week in downtown Buenos Aires.

Insist ruling was the result of a three-part agreement and is not a victory for Argentina

Allies of the holdout funds came out yesterday to question what they saw as an excessively pro-Argentina interpretation of the weekend ruling by New York District Judge Thomas Griesa, who authorized Citibank to process the servicing of sovereign bonds held under Argentine law in March and June.

Griesa’s ruling was welcomed as a small breakthrough for Argentina after months of bad news for the country in US courts. Citibank had originally been blocked by Griesa from distributing Argentine-based payments despite the fact that they were not governed by US law.

Yet the ruling should not be seen as a victory for Argentina, according to holdout lobbyists, who insisted the ruling was the result of a triangular agreement between the judge, the plaintiff and Citibank.

The ruling, which was publicly released yesterday, notes that Citibank will be able to process payments under certain conditions.

The ruling shows that Griesa and the plaintiffs came to a temporary agreement in order to allow Citibank to move forward with servicing the debt.

According to the ruling, the plaintiffs and Citi agreed to the following exchange:

“Citibank waives and foregoes any and all rights of appeal and rights to seek a stay without the consent of plaintiffs” in the three rulings involving the bank’s Argentine-based payments.

In return, “if Argentina pays some or all of the March 31 without making a Ratable Payment as defined in the Injunction, and Citibank Argentina receives a portion of such payment on behalf of its customers (approximately US$3.7 million), Citibank Argentina may process that payment. Such permission shall not apply to any other party or participant in the payment process on such bonds,” the ruling notes.

Citi’s obligations do not end there, as the bank also agreed to either terminate its relationship with clients regarding Argentine bonds or “sell those portions of Citibank Argentina’s custody business that include such customers’ accounts.”

In addition, Citibank is forced to accept strict supervision from the plaintiffs on this issue.

On a bi-weekly basis, the bank will be forced to disclose the current state of its plans for withdrawal from Argentina.

All documents sent by Citibanks to its clients, all communications from the bank’s managers negotiations with bondholders and all “non-privileged” communications concerning the bank’s withdrawal from Argentina with the country’s Central Bank, Economy Ministry or other senior country officials or legal counsels, will now have to be sent to NML Capital and the remaining holdout creditors.

The bank will also need to name a representative to answer all inquiries on this issue from the so-called “vulture funds” on a weekly basis.

The consequences

The agreement gives Citibank some breathing space to plan an orderly exit from its business as custodian in Argentina without violating the country’s law, as local auhorities say it has to fulfill the contractual obligations it agreed to when signing as trustee.

Citibank now has some months to negotiate a transfer of its obligations inside the country to a third party, although both the judge and the holdout creditors could object to the alternatives greenlighted by Argentine regulators.

For banks that could be reached by Griesa’s sanctions, operating Argentine bonds in the country’s jurisdiction remains a risk, as the Judge’s ruling said other banks remained excluded from his authorization.

According to the interpretation by ATFA, the lobbying organization financed by Paul Singer, although the agreement authorized Citibank to process part of Argetina’s end-of-month payments, the country would still be breaking the law if it pays without making a simultaneous payment to NML Capital, Aurelius and the rest of the creditors who rejected Argentina’s debt restructuring offers in 2005 and 2010.

Argentina, however, is likely to reject this idea and deposit the payments regardless, especially considering that Citibank is not forced to choose any longer between enraging Argentine or US authorities in deciding whether to process payments.

Herald staff