Saturday, November 2, 2013
Hedge funds lose bid to lift stay in litigation
Acting President Amado Boudou (left) talks with Economy Minister Hernán Lorenzino in a file photo.
A US appeals court leaves a freeze in place in bondholders case
A US appeals court yesterday said it would leave a freeze in place on an order requiring Argentina to pay US$1.33 billion to bondholders suing for repayment in the wake of the country’s 2002 default.
The 2nd US Circuit Court of Appeals in New York denied a motion to lift a stay it had issued in favour of Argentina pending US Supreme Court review of a ruling for the holdout bondholders in August.
The request to lift the stay was made October 15 by bondholders led by hedge funds NML Capital Ltd, a unit of Elliott Management Corp, and Aurelius Capital Management LP. The case is one of many lawsuits filed by bondholders in the wake of Argentina’s US$100 billion sovereign default in 2002.
“The court’s order confirms that the legal procedures pursued by Argentina are right and we ratify that Argentina will exercise its defense in all available judicial bodies,” Finance Secretary Adrian Cosentino said in a statement.
“Judges didn’t consider hedge funds claims over the path proposed by Argentina to guarantee debt
holders a normal payment,” he said. “We will now wait for pending resolutions and then for a presentation at the US Supreme Court.”
holders a normal payment,” he said. “We will now wait for pending resolutions and then for a presentation at the US Supreme Court.”
In two restructurings, creditors holding about 93 percent of Argentina’s bonds agreed to swap their bonds in deals that gave them 25 to 29 cents on the dollar.
But bondholders who did not participate in the restructurings, including NML and Aurelius, sued for full payment. The litigation was filed in New York under the terms of the bond documents.
. The litigation was filed in New York under the terms of the bond documents.
In 2012, US District Judge Thomas Griesa ruled Argentina had violated a clause requiring the equal treatment of creditors. The 2nd Circuit largely upheld that order, a decision the US Supreme Court recently declined to review.
As part of its October 2012 decision, the 2nd Circuit sent the case back to Griesa to clarify how the injunctions he had issued would function.
Griesa issued a new order last November that required Argentina to pay US$1.33 billion into a court-controlled escrow account in favor of the holdout bondholders.
The 2nd Circuit upheld that decision, but stayed its impact pending a second appeal by Argentina to the US Supreme Court.
In a letter to investors dated October 28, Elliott Managment said it remained hopeful that a “consensual resolution” could be achieved with Argentina regarding the hedge funds case. Elliot, which ranks among the industry’s most enduring funds, having opened in 1977 with US$1 million in assets, tried to force Argentina to make full payment on bonds it bought more than a decade ago.
on bonds it bought more than a decade ago.
World markets are watching the case for the implications it might have on future sovereign debtrestructurings. The International Monetary Fund has voiced fears that if Argentina is forced to pay the holdouts, it would make it more difficult for cash-strapped countries to renegotiate their bond obligations.
restructurings. The International Monetary Fund has voiced fears that if Argentina is forced to pay the holdouts, it would make it more difficult for cash-strapped countries to renegotiate their bond obligations.
After the 2nd Circuit’s ruling, President Cristina Fernández de Kirchner pitched a voluntary swap of foreign debt in exchange for bonds governed by local law. But Judge Griesa said last month the proposal would violate an injunction he had issued.
in exchange for bonds governed by local law. But Judge Griesa said last month the proposal would violate an injunction he had issued.
Supreme Court agenda
The United States Supreme Court last month left Argentina’s appeal in its battle with hedge funds out of its first list of cases to accept as part of its 2013-2014 agenda, which based on the court’s usual practice, may mean that the court will decline to hear the case or that it will ask the Obama administration to weigh in on whether the dispute is worth the court’s attention.
The Obama administration backed Argentina in the lower courts but has not indicated where itstands now that the case is before the high court.
now that the case is before the high court.
The Supreme Court’s refusal to get involved means litigation in lower courts continues, with Argentina able to seek high court review again at a later date when there is a final ruling in the appeals court.
Looking to rebuild confidence amongst foreing investors, the government agreed last month to pay about US$500 million to resolve disputes with several European and US corporations. The payment will be made in sovereign bonds to four companies that filed complaints with the World Bank’s International Centre for Settlement of Investment Disputes and one firm that took its case to the UN Commission on International Trade Law.
Disputes and one firm that took its case to the UN Commission on International Trade Law.
Five agreements were signed with the companies, which agreed to a 25 percent discount on a total US$677 million in claims, a communiqué from Argentina’s Economy Ministry had said.
, a communiqué from Argentina’s Economy Ministry had said.
Argentina is also looking to present its best face in order to help unlock additional credit lines from the World Bank, the International Monetary Fund and the People’s Bank of China in order to support its dwindling foreign currency reserves.
from the World Bank, the International Monetary Fund and the People’s Bank of China in order to support its dwindling foreign currency reserves.
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