Griesa’s injunction could establish a precedent for Greece and other nations, said Anna Gelpern, a professor of law at American University and Georgetown University in Washington.

Obama Opposes Hedge Fund in Bond Default Case: Argentina Credit
2012-04-11 12:35:38.160 GMT


By Drew Benson
April 11 (Bloomberg) -- President Barack Obama’s administration is backing Argentina in its defense against investor Paul Singer, reducing the billionaire’s chances of receiving payments on bonds the country defaulted on in 2001.
The U.S. government urged the U.S. Court of Appeals in New York on April 4 to overturn rulings directing Argentina to settle in full with NML Capital, a fund run by Singer’s Elliott Management Corp., when it makes payments on bonds issued in 2005 and 2010 restructurings. Argentina, which defaulted on a record
$95 billion, has the highest borrowing costs among major emerging markets after Venezuela.
The Obama administration said the lower-court rulings could hurt other restructurings by rewarding investors who hold out while punishing participants. That concern is heightened following last month’s Greek restructuring and as other European nations struggle to meet obligations, said Arturo Porzecanski, a professor of international finance at American University in Washington.
“The concerns noted by the U.S. government seem especially relevant given that other European nations will likely end up restructuring their debts,” Porzecanski said. “The appeals court is very likely to be swayed by the opinions of the U.S.
government because of the foreign-policy considerations raised.”

Greek Exchange

Officials at Elliott in New York declined to comment.
Argentine Economy Ministry officials didn’t respond to requests for comment, while the U.S. Department of Justice declined to comment.
Global stocks slid yesterday, extending the longest slump for the Standard & Poor’s 500 Index since November, as a surge in Spanish and Italian bond yields fueled concern Europe’s debt crisis is worsening.
Greece has given investors until April 20 to tender their securities under its 206 billion-euro debt exchange, and “there will be no better offer” for holders of bonds issued under international law, government spokesman Pantelis Kapsis said last week. Participating investors will suffer a 53.5 percent reduction in the face value of their securities.
Participation in the restructuring exceeds 96 percent, a private creditor committee said yesterday, citing the Greek government.
The extra yield investors demand to hold Argentina’s dollar bonds instead of U.S. Treasuries fell 33 basis points to 927 at
9:32 a.m. in Buenos Aires. That compares with 1,000 for Venezuela and 188 for Brazil, according to JPMorgan Chase & Co.’s EMBI Global Index.
Argentina’s risk premium is partly due to its inability to sell debt overseas while the legal battle with so-called holdout creditors, who own defaulted bonds that weren’t exchanged in the restructurings, drags on. NML Capital and billionaire Kenneth Dart’s EM Ltd., which isn’t involved in the current appeal, are among the major holdouts.

Defaulted Bonds

Defaulted euro-denominated Argentine bonds are trading around 25 cents, down from 26 cents last month, which was the highest since the debt began trading after the 2010 restructuring, said Amir Zada, managing director at Exotix USA Inc., which trades exotic and illiquid emerging market debt in New York. Volume has declined since last month, he said.
U.S. District Judge Thomas P. Griesa’s Feb. 23 ruling interprets so-called pari passu clauses in sovereign debt contracts to mean that NML Capital’s judgments related to defaulted debt should be treated with equal ranking as restructured debt.
Elliott is seeking to repeat its success with Peru in 2000, when the Andean nation paid it $58 million to settle a three- year dispute over defaulted bonds. In that case, Elliott obtained a Belgian court order to block an $80 million coupon payment through Euroclear Bank SA, the world’s biggest debt settlement system, prompting Peru to settle to avoid default.
Belgium subsequently prohibited holdout creditors from obtaining court orders to block payments through Euroclear, the U.S. government wrote in last week’s brief.

‘Increase Litigation’

Griesa’s order, if upheld on appeal, will “increase litigation both in the U.S. and elsewhere and make orderly restructuring of much of the world’s New York law-governed sovereign debt impossible,” The Clearing House Association, a U.S. banking industry group, wrote in an April 4 filing in support of Argentina’s position.
“The injunction would impose undue burdens on banks, risk delaying the timely settlement of unrelated payments and disrupt stability of these markets,” the association said.
NML Capital may still prevail if the appeals court asks Griesa to limit his interpretation to the Argentine case by focusing on one of the country’s laws that gives higher legal preference to restructured debt, said Mark Weidemaier, a law professor at the University of North Carolina at Chapel Hill.

‘Narrowly Focused’

The U.S. government’s brief “makes it more likely that the Second Circuit Court seeks a more narrowly focused order,”
Weidemaier said in a telephone interview, referring to the appeals court in New York.
NML Capital has won five judgments totaling $1.6 billion and has six other lawsuits pending judgment, according to court filings. The fund, which has until next week to file its response to the amicus briefs, has yet to receive any payout from its Argentina-related court awards.
Credit-Default Swaps

The cost of protecting Argentine debt against non-payment for five years with credit-default swaps rose 14 basis points yesterday to 907, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
The peso was little changed yesterday at 4.383 per dollar.
Griesa’s injunction could establish a precedent for Greece and other nations, said Anna Gelpern, a professor of law at American University and Georgetown University in Washington.
“Greece is marketing this exchange and the last thing it wants is for investors to think it will become embroiled in litigation involving its restructured debt,” Gelpern said.
The case is NML Capital Ltd. v. Republic of Argentina, 12-00105, U.S. Court of Appeals for the Second Circuit (Manhattan).

For Related News and Information:
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Top news from Latin America: TOPL <GO>
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For economic statistics on Argentina: ECST AR <GO> Argentina’s economic calendar: ECO AR <GO> Argentine treasury and money markets: BTMM AR <GO> Argentine peso intraday chart: ARS <Crncy> GIP 10 <GO> Map of Argentine equity trading: MERVAL <Index> IMAP <GO> All emerging-market markets: EMMV <GO>

--With assistance from Eliana Raszewski in Buenos Aires.
Editors: Richard Jarvie, Glenn J. Kalinoski

To contact the reporter on this story:
Drew Benson in New York at +1-212-617-7949 or abenson9@bloomberg.net

To contact the editor responsible for this story:
David Papadopoulos at +1-212-617-5105 or papadopoulos@bloomberg.net