Thursday, April 14, 2016

US court rules for Argentina on debt injunctions

Finance Minister Alfonso Prat-Gay celebrated the news in New York yesterday saying it came quicker than expected.

Country’s bid to re-start debt payments approved ahead of bond sale to imburse holdouts

NEW YORK — The government was celebrating yesterday, after the courts reversed a legal ruling barring Argentina from servicing most of its foreign debt, a decisive victory for President Mauricio Macri.

A US court of appeals confirmed New York District Judge’s Thomas Griesa’s decision saying that a injunction freezing payments should be lifted once Argentina pays the so-called “vulture” funds that accepted the country’s improved offer earlier this year.

The ruling opens the door for the country to normalize most of its debt schedule, which could not be paid on time since the US Supreme Court rejected Argentina’s appeal in 2014.

It will also facilitate Argentina’s bid to issue billions of dollars in new debt next week, a large part of which will be used to pay the bondholders who sued the country for a larger payout.

The Second US Circuit Court of Appeals in New York ruled after hearing arguments from bondholders opposed to giving any relief to Argentina. The country contended that vacating the injunctions was a crucial step in settling the litigation.

In announcing the three-judge panel’s ruling yesterday, US Circuit Judge Christopher Droney said Griesa did not abuse his discretion by vacating the injunctions, given that circumstances changed after years of litigation.

The end of the injunction against the country is likely to help Argentina obtain loans at a lower interest rate to pay those settlements.

“We didn’t expect a ruling so soon, we are celebrating,” Finance Minister Alfonso Prat-Gay told reporters in New York. He argued that the country was taking “a step toward normality and development as it deserves,” opening the door to “thinking about the future, creating jobs and offering well-being to its citizens.”

A press release from the Finance Ministry also said that “Argentina has put a definitive end to its default after the Appeal’s Court ruling,”

Improved terms

The court’s change in stance came after President Mauricio Macri agreed to pay a large part of the debt that the holdouts were demanding, in a bid to end litigation spilling out of Argentina’s US$100-billion default in 2002.

The government was pushing for a swift ruling as it tries to raise funds to pay for over US$8 billion in settlements for the minority of bondholders who did not accept Argentina’s initial restructuring offers in 2005 and 2010.

That restructuring resulted in 92 percent of defaulted debt being swapped at 30 percent of face value, but the remaining bondholders obtained a series of unprecedented rulings from Griesa in an attempt to force the country into paying more, including the injunction which will now be lifted.

Argentina offered improved terms to settle the litigation in February, and soon after asked Griesa to vacate the injunctions that prevented it from servicing its restructured debt until it paid the suing bondholders.

But creditors argued Griesa’s ruling was based on a coercive plan by Argentina to force settlements at a lower price. They said lifting the injunctions now would be too quick, as it would eliminate the leverage that forced the country to negotiate.

Deadline will

not be forced

The ruling came a day before today’s deadline for Argentina to pay four major creditors, including Elliott Management’s NML Capital and Aurelius Capital Management, which can terminate the US$4.65 billion settlement agreement if no payment occurs by then.

The fact that the Appeals Court originally scheduled the audience for just a day before that deadline complicated Argentina’s bid to raise the funds needed to pay NML and the rest of the holdouts that accepted improved terms.

Prat-Gay had warned last week that the timing imposed by courts ended up being too tight for the country to comply with, but remained positive that the agreement with the holdouts would not fall through as they had no incentive to walk out of it.

Lawyers for the hedge funds said yesterday they could wait longer and would not terminate the agreements today even if the country had no time to raise the money to pay them in time.

“If they pay us within the next two weeks it would be wonderful,” NML lawyer Robert Cohen said after the hearing.

But they urged the court to not lift injunctions that had given them leverage.

“Argentina’s feet need to be held to the fire,” said Matthew McGill, NML’s lawyer.

Paul Clement, Argentina’s lawyer, responded by saying that removing the injunctions was warranted as Griesa designed them to encourage settlements and “understood it was a means to an end.”

Challenges remain

The country’s top officers in the area are now focused on securing the US$15-billion bond issuance they have been promoting since Monday, with a roadshow across the US and Europe to meet potential purchasers in the West’s main markets currently ongoing.

The bond would be the first large-scale global issuance for the country in 15 years.

Argentina plans on paying holdout creditors on April 22 with the proceeds of its bond issuance early next week, a Finance Ministry spokeswoman said on Wednesday.

According to the ministry, the proceeds of the bond sale will be used both to pay the settlements and to finance “the government’s infrastructure plans.”

Critics, however, say the extra money will not be necessarily spent on infrastructure, and have criticized Macri’s government for potentially getting into a new ‘debt spiral’ similar to that of the 1990s, which ended up causing the 2001 default and the present-day litigations.

Macri’s goverernment could also face additional legal challenges.

Although more than 90 percent of the bondholders with claims against the country in New York already accepted Argentina’s improved offer, a settlement with the minority is still pending, even if yesterday’s ruling strengthens the country’s negotiating position against them, as it now is in no hurry to offer better terms.

Several opposition politicians have also raised questions as to whether the bondholders who accepted a smaller payout following 2005 and 2010’s restructurings could sue the country for the same terms that NML, Aurelius and others ended up getting.

Herald staff with DyN, Reuters