Monday, November 11, 2013
‘Gov’t must negotiate on defaulted debt’
Holdouts managed to get a Ghana court to briefly detain the frigate Libertad last year.
By Francisco Aldaya
Attorney Eugenio Bruno tells the Herald holdouts have an interest in settling out of court
As they continue to win
legal battles in the United States, holdout creditors, the hedge funds the president likes to refer to as “vultures” — who are fighting for full payment for the defaulted Argentine bonds that were the result of the country’s economic collapse more than a decade ago — are increasingly looking for an out-of-court deal.
legal battles in the United States, holdout creditors, the hedge funds the president likes to refer to as “vultures” — who are fighting for full payment for the defaulted Argentine bonds that were the result of the country’s economic collapse more than a decade ago — are increasingly looking for an out-of-court deal.
Reaching a deal outside the courtroom would give the holdouts a more realistic chance of payment than a judicial ruling, according to Eugenio Bruno, a partner at the Buenos-Aires based Garrido law firm.
at the Buenos-Aires based Garrido law firm.
Bruno contends the government must use time gained — when the Supreme Court refused to hear an appeal filed by Argentina, which effectively upheld a stay suspending rulings against the country — to negotiate with holdouts, and work on improving relations with US President Barack Obama’s administration.
Did the Supreme Court refuse to hear Argentina’s appeal because another case relating to the country’s default is in the process of being appealed?
The Supreme Court did not take on the definitive case on Argentina’s non-compliance with the paripassu clause (determining that all debt must be treated equally) for now, period. This has nothing to do with the separate case on methods of payments, and the ability to be restructured bondholders without paying the holdouts.
passu clause (determining that all debt must be treated equally) for now, period. This has nothing to do with the separate case on methods of payments, and the ability to be restructured bondholders without paying the holdouts.
The Second US Circuit Court of Appeals recently upheld the stay in favour of Argentina, allowing it to pay bondholders in December without first paying holdouts. Is this a real victory for Argentina, and what would be the best strategy for the country moving forward?
It’s a procedural victory for Argentina, a temporary one, which can last up to a year. Regarding what Argentina can do, it depends what it decides to do, really. Argentina is considering restructurings. The stay allows the government time to resolve the issue, which must be done. The other option is a negative ruling without having done anything, which leads to paying the sentence or a default.
to paying the sentence or a default.
If the Supreme Court ends up ruling against Argentina or does not take the case, would a default be unavoidable?
The government can choose to pay, avoiding the default. Or it can choose to default, those are the options. But it must negotiate before it comes to that point.
Why would the holdouts negotiate outside the courtroom when they seem to be cruising inside it?
Because they know that even a favourable ruling, as you said, may not imply they will be paid because the government has insisted it won’t pay. It’s not just the US$1.33 billion, that’s just one group of holdouts that has taken legal action. Apart from Elliot Management there are up to US$15 billion and US$20 billion worth of defaulted bonds, some of which already have favourable rulings and are waiting to apply the pari passu clause. Added up, the sum is unpayable, and we’re in a context of falling reserves. It’s not a case where it’s illogical to pay the US$1.33 billion, it’s because of what lies behind it: funds that will be dealt the same treatment as Elliot. Holdouts know that winning at the judicial level still implies a low chance of being paid.
passu clause. Added up, the sum is unpayable, and we’re in a context of falling reserves. It’s not a case where it’s illogical to pay the US$1.33 billion, it’s because of what lies behind it: funds that will be dealt the same treatment as Elliot. Holdouts know that winning at the judicial level still implies a low chance of being paid.
Did previous restructurings not have as a condition that restructured creditors would forfeit the right to make legal claims for greater payment in the future? Tell me a little about the Rights Upon Future Offers (RUFO) clause.
The RUFO is based on the best creditor clause, which states that until January 1, 2015, the government cannot voluntarily make better offers and cannot reach extrajudicial accords with holdouts under better terms than the 93 percent (who restructured their bonds). If it were to do so, it would have to offer the same to the 93 percent. So a ruling before January 1 would undermine all negotiations, as things stand.
Is it impossible for the government to delay proceedings until the RUFO clause expires on January 1, 2015?
No, I think that’s a good idea. In fact, we have proposed bringing the expiry date forward due to the risk of a ruling before then, and being able to carry out the restructuring with holdouts before that date. The date in our plan is in May, when the risk of a ruling becomes greater. If the clause were to expire in May, thereafter a better offer can be made so as to convince at least 95 percent of holdouts.
Everything would suggest that the ruling would come before then.
Yes, things look that way.
Can the Executive cozy up with the Obama administration to encourage it to pronounce itself in favour of the government, thereby possibly delaying a ruling further?
Yes. I have always said that a very good relationship with the United States is pivotal, to have their support in this case.
Are the agreement to settle debt case before the World Bank’s ICSID tribunal and the reopening a third debt swap examples of gestures toward the US?
case before the World Bank’s ICSID tribunal and the reopening a third debt swap examples of gestures toward the US?
In the case of the ICSID, yes, but the third restructuring, no — it’s not enough. It’s okay, but you must offer something better. It will leave out a high percentage of the holdouts, it’s non-negotiable. The US government sent a letter to legislators saying that in the same way Argentina negotiated with the International Centre for Settlement of Investment Disputes, it must now do so with holdouts. So offering the same deal as the previous swap is useless. In fact, it could complicate things. Offering something better would help with US relations immensely.
Is there a risk then that the third offer could be interpreted negatively by the Supreme Court?
No, the one that could take things badly would be the US Executive. If the US Congress says, ‘negotiate with the holdouts,’ and the holdouts say, ‘we do not want what was offered in 2010,’ and you offer that, you’re not negotiating. They’re saying give me a glass of water, and you give them a glass of whiskey at 10 in the morning.
How would a ruling against Argentina change the basis for future debt restructurings throughout the world, if countries have seemingly already learned from the country’s mistakes?
restructurings throughout the world, if countries have seemingly already learned from the country’s mistakes?
It’s always debatable. The market will incorporate this by still including the pari passu clause, but with greater written detail to leave no room for judges’ interpretation of it. Debt is now issued with collective clauses that require majority agreement for restructuring.
passu clause, but with greater written detail to leave no room for judges’ interpretation of it. Debt is now issued with collective clauses that require majority agreement for restructuring.
@franma1990
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