Sunday, June 7, 2015

‘Me-too’ ruling only tip of the iceberg

Argentina''s lawyers Jonathan Blackman (left) and Carmine Boccuzzi (centre) arrive at Griesa’s court in Manhattan in a file photo.

By Fermín Koop
Herald Staff

Griesa’s recent ruling is seen as the tip of the iceberg as more claims could be filed

The US$5.4 billion that United States Judge Thomas Griesa said on Friday Argentina owes to the so-called “me-too” bondholders could soar as claims for defaulted bonds worth around US$17 billion are still to be filed, according to public and private estimates.

The judge ordered the country pay more than 500 so-called “me-too” holders of defaulted debt at the same time as restructured creditors. The reuling pushed the bill for holdout funds to US$7 billion following Griesa’s previous order to pay Elliott and Aurelius Management US$1.6 billion, including interest.

The country currently has US$24 billion worth of debt still in default, including interest, with 66 percent of the bonds issued under New York legislation and 34 percent under European legislation, according to estimates by the Garrido law firm. Considering US$7 billion in claims have already been accepted by Griesa, that leaves US$17 million pending.

The federal government has similar estimates as its lawyers in New York who work in the firm Cleary Gottlieb Steen & Hamilton have warned in hearings with Griesa there are US$10 billion in judgments against the country in New York federal courts alone. No country the size of Argentina could afford to pay that “without subjecting its economy and citizens to an unacceptable degree of catastrophic risk,” they said at a recent hearing.

“I don’t know exactly how much more but there’s definitively more money out there to be claimed. There are other ‘me-too’ claimers and I don’t see anything in Griesa’s ruling that limits them to issue new claims,” Law Professor at the University of North Carolina (UNC) and sovereign debt expert Mark Weidemaier told the Herald. “It would be great for the government to get a single definitive ruling over the ‘me-toos’ but that’s not realistic.”

The so-called “me-too” bondholders are a group of creditors who did not accept the terms of the 2005 and 2010 restructurings but have not taken legal action against the country and are thus not covered by Griesa’s initial ruling. Aside from the hedge funds, the other holdout creditors are a mix of individual and institutional investors from around the world.

A total 120 petitions from 526 plaintiffs have been filed before Griesa, who had set March 2 as the deadline for all claims. Most of them were filed by NML, Aurelius, Blue Angel, Lightwater, Blue Castle, Old Castle, Capital Ventures and EM — all major holdout funds which also represent smaller organizations.

“There are other bondholders who could issue claims but the largest ones have already showed their faces. We’ll see more claims from retail bondholders rather than of large ones like Elliott,” Jorge Ignacio Frechero, a debt expert and researcher at the CEIPIL think tank, told the Herald. “Argentina had asked to negotiate with all the holdouts so now with more of them included in the ruling we’ll have to see what the government does.”

A doomed appeal

Reacting quickly after Griesa’s ruling, the Economy Ministry said the country will appeal it, claiming the “me-too” holders are actually the same “vulture” funds who issued similar petitions in the past. Nevertheless, experts told the Herald that the appeal will probably not be successful considering the many favourable rulings by the US judiciary toward the holdout funds.

“The government’s intent is to appeal as the ruling wouldn’t be applicable because those ‘me-too’ bondholders already have open claims. But I’m not optimistic regarding the appeal based on how the US courts operate,” Stella Maris Biocca, a lawyer specialized in international law, told the Herald. “No matter what happens, the government should stay on the same path. A deal will eventually be reached.”

Griesa said the “me-too” creditors held bonds similar to those owned by the hedge funds that started litigation against Argentina and thus should be treated the same way. The bonds, he said, contain a clause that requires payment at the same time as creditors who agreed to exchange their debt in the 2005 and 2010 restructurings.

The US judge said Argentina has violated that clause by refusing to pay the holdouts while attempting to pay the exchange bondholders, who hold about 92 percent of the defaulted debt worth around US$28 billion in outstanding principal.

“Excepting a miracle, the appeal is already lost — especially with Argentina being in contempt of court,” Eugenio Bruno, an attorney specialized on sovereign debt issues and a partner at Garrido law firm, told the Herald.

Argentina refused last year to heed to Griesa’s orders that it must pay the holdout hedge funds, led by NML and Aurelius, at the same time as it pays bondholders who participated in the debt exchanges following the country’s earlier 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 trustee and establish local payment mechanisms for its restructured creditors for Par bond payments, leading Griesa to rule that the country was in contempt of court.

Upcoming ruling

As he opens the door for more “me-too” bondholders, Griesa still has to make a decision on the “vulture” funds request to have payment blocks extended to more of the country’s dollar debt, including bonds issued last month. An NML lawyer said on Friday they are expecting a “fairly” prompt decision from Griesa.

“Griesa’s record shows he has followed the orders of the ‘vulture’ funds every time so he will probably do the same on this issue. Still, it won’t be easy for him to intervene as it’s domestic debt. He would be exceeding his attributes if he rules in favour of the holdouts,” Frechero said.

Argentina issued US$1.4 billion in BONAR 2024 bonds last month to raise much needed money, using the fact they are governed by local law to side-step the US court order which blocks the country from making payments on its obligations without paying the holdouts as well.

NML Capital, Aurelius Capital and Blue Angel jointly asked Griesa to make the bonds subject to the prior court order which blocked Argentina from repaying its obligations until a settlement with them is reached. Even though Griesa hasn’t issued a ruling yet, he has clarified in the past that he did not yet see a reason to declare any of Argentina’s new bond issues illegal.

@ferminkoop