US appeals court rebukes Griesa Says judge improperly expanded class of me-too bondholders targeting Argentina

Tuesday, August 11, 2015

US appeals court rebukes Griesa

Says judge improperly expanded class of me-too bondholders targeting Argentina

NEW YORK — Argentina scored a rare victory in US courts yesterday, as the country successfully appealed a ruling by US District Judge Thomas Griesa that entitled “me too” bondholders to as much as US$700 million.

The Second US Circuit Court of Appeals in New York said that the New York District Judge had improperly expanded a class of bondholders who were seeking repayment following the country’s US$100 billion default in 2002.

In June, Griesa had acknowledged demands worth US$5.4 billion, pushing the bill for holdout funds to US$7 billion following Griesa’s previous order to pay NML and Aurelius Management US$1.6 billion, including interest. The judge ordered the country pay more than 500 so-called “me-too” holders of defaulted debt at the same time as restructured creditors.

But Circuit Judge Chester Straub, writing for a three-judge panel, said yesterday that Griesa must return to a narrower definition of the class, limited to those who have continuously held the eight series of bonds in question, and to hold a hearing to determine the proper amount of damages.

Carmine Boccuzzi, Argentina’s lawyer, welcomed the ruling, saying the plaintiffs had “repeatedly failed to prove their alleged damages and are not entitled to the overstated judgments” they have sought in court.

Jennifer Scullion, the plaintiffs’ lawyer, declined comment.

‘A lot of money’

Economy Minister Axel Kicillof has argued in the past that the country cannot respond to the demands of the me-too bondholders in full, saying that “Argentina can’t issue that much money in debt to get rid of the problem. It’s a lot of money.”

The so-called “me-too” bondholders are a group of creditors who did not accept the terms of the 2005 and 2010 restructurings on defaulted debt 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. Most of these were filed by NML, Aurelius, Blue Angel, Lightwater, Blue Castle, Old Castle, Capital Ventures and EM — all major holdout funds that also represent smaller organizations.

According to Kicillof, Griesa’s ruling in favour of the me-toos proved the government’s hard-negotiating strategy right.

“It wasn’t just the US$1.6 billion for Paul Singer but a lot more money,” Kicillof said. “It was a trap by the ‘vulture’ funds. They wanted us to make a deal so new bills by Singer would appear. The opposition economists fell into the trap, asking us to pay the holdouts.”

Question of inclusion

Yesterday’s ruling marked the latest development in long-running litigation by creditors seeking full repayment on Argentine bonds following its 2001 default.

It came in a related series of lawsuits by creditors seeking to pursue damages as a group in class action lawsuits rather than individually as creditors initially sought to pursue claims on behalf of all holders of Argentina’s bonds in eight bond series.

Griesa granted class action status in 2005 but only on behalf of creditors who continuously held the bonds, a major restriction given secondary market trading in the bonds. He then entered judgment against Argentina for US$2.2 billion.

Argentina appealed. In 2010, the 2nd Circuit reversed, saying the judgments were inflated.

Griesa entered judgment again, this time for US$700 million, but the 2nd Circuit reversed once more and instructed him to hold a damages hearing and to assess them on an individualized basis if a reasonable approximation as a group was not feasible.

Instead, Griesa in 2014 modified the class definition to encompass all holders of outstanding bonds, as the plaintiffs originally wanted.

The creditors subsequently moved for an order blocking Argentina from servicing its debt unless the country paid them US$700 million

Herald with Reuters