El Cronista
Reopening of the debt swap is studied to curb the onslaught of the vulture funds
Monday, October 29, 2012
By Juan Cerruti
While the government is trying to digest the impact of the decision that was issued Friday from the Court of Appeals in New York, which ordered Argentina to treat those who didn’t accept the debt swap in the same way as the rest of the creditors, the technical staff charges with handling relations with the debt worked all weekend on various scenarios that are opening up in front now to confront the vulture funds.
In the government, they admit that the context has changed and the ruling from the Court of Appeals was unexpected. It backed the theory of ‘pari passu’ that the lower court judge, Thomas Griesa, put forth and such the court is now requiring Argentina to make an offer to the vulture funds and the other creditors that didn’t accept the swap (called the ‘holdouts’ in jargon).
For this, during this week the technical teams at the Economy Ministry will work on a ‘menu of options’ to present to President Cristina Fernández. One of the alternatives that is being looked at is to continue with the ‘hard line’ that the Kirchner administration has shown until now. This is, appeal the decision of the court, seek to stretch out the sentence until at least the first days of December (when there are two bond payments under foreign legislation) and try to shield those payments against possible attachment attempts.
But the other option is to directly face what has come: the decision of the court will be difficult to reverse, only the Supreme Court can do it (which doesn’t accept all cases) so sooner or later they’ll have to offer some kind of settlement to the holdouts. The dilemma that the government has here is how to do it without appearing to the public that it is surrendering to the vulture funds. Even under study is a reopening of the debt swaps held in 2005 and 2010 with the goal of dismantling the theory of ‘pari passu’ and show equal treatment to all the creditors. For that, they’d have to go to Congress to overturn the so called “lock law” that is impedes the reopening of swaps.
But on this zig-zagging path, uncertainty reins. The court that ruled on Friday now kicked the ball back to Griesa to determine how the equal treatment for those who didn’t enter the swap will be implemented. Nobody knows what payment plan Griesa will decide, and in what time frame he’ll expedite it. Then he has to remit his proposal to the upper court, which has to approve it.
Also unknown is the role that the payment agent for Argentine bonds in the US will play. It is the Bank of New York. If the date arrives for paying the next installment on Argentine bonds abroad (December 2 for the Global 2017 and then the GDP coupon on the 15th),with tthe ruling in the US court is upheld, this entity will be exposed to lawsuits if it holds the operation.
Over the whole weekend there were intense contacts between Economy Minister Hernan Lorenzino, Finance Secretary Adrian Cosentino, and attorneys defending Argentina in the lawsuits from the creditors in the United States, the firm of Cleary, Gottlieb, Steen & Hamilton. Also participating in the deliberations were other officials with experience on the issue, like the new Argentine representative to the IMF, Sergio Chodos, who actively worked on the team of Roberto Lavagna during the local restructuring.
“The sentence was suspended since the very moment it was issued and today it remains suspended, so nothing about the current status quo is altered,” Cosentino said Friday. And he explained that the ruling “is not the last word in the litigation.”
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