Monday, October 26, 2015
Legal battle with ‘vulture’ funds to resume
Downtown Buenos Aires was plastered with posters last year against the holdouts and United States District Judge Thomas Griesa.
US Judge Thomas Griesa will hold two key hearings over ‘me-toos’ and discovery claims
With the country absorbed in the presidential elections, the dormant legal dispute between Argentina and the holdout funds that have refused to restructure defaulted debt is set to resume in the upcoming weeks with two key hearings at the chamber of US District Judge Thomas Griesa, which could set the stage for one of the most pressing challenges the next administration will face once the new president is sworn in on December.
The first key date will be Wednesday, only three days after the elections, when Griesa will hear the arguments of 45 “me-too” bondholders who hold debt for about US$6.1 billion and seek to be paid in full such as NML and Aurelius, who represent them in the complaint. If the US judge rules in their favour, the bill of Argentina with the holdouts, now at US$10 billion, would grow to US$16.1 billion.
The so-called “me-too” bondholders are a group of creditors who did not accept the terms of the 2005 and 2010 restructuring but have not taken legal action against the country and are thus not covered by Griesa’s initial ruling in favour of the holdouts. Besides the hedge funds, the other holdout creditors are a mix of individual and institutional investors from around the world.
Griesa acknowledged claims from more than 500 “me-toos” in July for US$5.4 billion, which made the debt with the holdouts soar to US$7 billion following his previous order to pay Elliott and Aurelius US$1.6 billion, including interest. Since then, he has accepted more claims, the last one on Thursday from 15 creditors.
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 and by the government lawyers in New York.
The US judge has said that the “me-too” creditors held bonds similar to those owned by the hedge funds that launched 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 restructured bondholders, who hold about 92 percent of the defaulted debt worth around US$28 billion in outstanding principal.
But as the bill with the “vultures” started to grow so did the criticism on Griesa’s performance. The Second US Circuit Court of Appeals in New York showed discomfort twice with Griesa’s recent decision to expand the claims, asking him to recalculate the amount of debt requested by the “me-too” bondholders, which could benefit the government if the debt is decreased.
But that won’t happen quickly. In his last hearing on September 30, Griesa granted the so-called “me-too” bondholders four months to establish the amount that holdouts are demanding from Argentina. The creditors had asked for between six and eight months but the US judge said such a long period of time was “unreasonable.”
Following Wednesday’s hearing, Griesa will hold a hearing with the lawyers representing Argentina and the “vulture” funds in again on November 5 to resolve the discovery requests of the holdouts on the Argentine assets in the United States.
NML filed a memorandum before Griesa’s court weeks ago in complaint with regard to the incomplete information handed over by the government over its assets, which led Griesa to give Argentina until October 30 to hand over the full information which will then be reviewed at the hearing.
Griesa had ordered the government in August to produce a log in 10 days of any documents it deemed protected by attorney-client privilege, warning the country could see that privilege waived if it failed to comply.
Griesa argued back then that because the country failed to produce documents in response to a 2013 order, any other property held in the United States would be deemed commercial, which would make it easier for holdout creditors to seize. Nevertheless, he said that diplomatic and military assets were out of the legal reach of plaintiffs.
So far, sovereign immunity has protected Argentine assets around the world from the hands of holdout debt holders. Two weeks ago, the second US Circuit Courts of Appeal dismissed an appeal by NML and EM that asked for Central Bank reserves to be seized as a compensation to creditors.
Both Argentina and a large majority of nations supporting the country’s stance at international forums have argued that sovereign immunity from jurisdiction and execution regarding sovereign debt restructurings is a right of states before foreign domestic courts and exceptions should be restrictively interpreted
Argentina refused last year to heed 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 swaps following the country’s 2001 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, ending 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.