With the confidence of already having won a long-term legal battle, holders of defaulted Argentine debt said yesterday they would be willing to discuss allowing the government to pay other bondholders to avoid a potential default — but only if negotiations have made progress before July 30.

Wednesday, June 25, 2014

Holdouts: country must negotiate first

Elliot Management owner Paul Singer in a file photo.

By Fermín Koop
Herald Staff

Creditors call on Judge Griesa to deny request for stay until talks show progress

With the confidence of already having won a long-term legal battle, holders of defaulted Argentine debt said yesterday they would be willing to discuss allowing the government to pay other bondholders to avoid a potential default — but only if negotiations have made progress before July 30.

President Cristina Fernández de Kirchner was reported to have held a meeting with Economy Minister Axel Kicillof, Deputy Economy Minister Emanuel Alvarez Agis, Banco Central Governor Juan Carlos Fábrega, ANSES head Diego Bossio, Cabinet Chief Jorge Capitanich and Legal and Technical Secretary Carlos Zannini at Government House yesterday to discuss the next steps for the administration.

Lawyers representing the holdout investors, led by Elliott Management’s NML Capital Ltd and Aurelius Capital Management, also said in a letter to US District Judge Thomas Griesa that there were no grounds to grant Argentina’s request to reinstate a suspension of his order to make payment on defaulted debt. Now Griesa will have to decide if he grants the government a new stay, but debt experts told the Herald that is highly unlikely, at least for now.

“A new stay is legally possible, but having read his previous orders, Griesa never sounded like somebody sympathetic to the Argentine position. He has taken a very hard line against the country’s attempts for delays,” Richard Samp, chief counsel at the Washington Legal Foundation, told the Herald. “My guess is that a new stay would only be issued if both parties ask him for one.”

A bond payment of US$900 million is due Monday to investors who participated in restructurings in 2005 and 2010, receiving 25 to 29 cents on the dollar. There is a 30-day grace period before an actual default can be declared if there is no payment. On Monday, Griesa appointed New York financial trial lawyer Daniel Pollack as “special master” to assist in the negotiations.

Argentina’s lawyers asked Griesa to suspend his order, which would force the nation to either pay holdouts at the same time it makes a payment on restructured debt or be barred from paying anyone, thereby creating a technical default even though it has the cash to cover its debt.

“Griesa is on the side of the hedge funds, and will do what their lawyers ask him to do. He has said repeatedly that he is irked with Argentina’s position,” Ignacio Frechero, a specialist researcher at the CEIPIL, an international relations think tank, told the Herald. “All pieces are falling into place for negotiations. It would be hard to reach an agreement before June 30, but it could be reached before July 30.”

Full of confidence

The lead counsel to the holdouts, Robert Cohen, said in the letter to Griesa that “if as July 30 approaches the parties have made good progress but more time is needed, and Argentina has not taken action to evade the amended February 23 orders, Argentina and the plaintiffs will both have a strong motivation to work out a consensual accommodation, on mutually agreeable terms.”

Cohen went on to say this would allow the settlement process to continue, allow Argentina to make the payment to restructured bondholders within the grace period and give his clients protection and compensation over the risk that the settlement effort fails after Argentina makes its payment.

“While granting a stay isn’t necessary for negotiation, it would serve to create more time for Argentina to develop evasion plans which it has repeatedly demonstrated its willingness to do,” Cohen wrote. “Even though Argentina now expresses a willingness to negotiate a resolution of its defaulted debts, Argentina has not yet commenced such a negotiation.”

In the letter, Cohen revealed the debt to hedge funds rises to US$1.65 billion, more than the US$1.5 billion claimed by the government, adding that the government has “ample resources” to pay the sum and the amounts due to restructured creditors on June 30. At the same time, he explained the government has no legal reasons to justify asking Judge Griesa to issue a new stay.

“Argentina’s willingness to negotiate is not even remotely the type of ‘new and unforeseen condition’ that could warrant granting it relief from the injunction,” Cohen said. “Moreover, Argentina cannot possibly show that enforcement of the injunction would be ‘detrimental to the public interest’ as the Supreme Court requires.”

Griesa’s order was upheld after the US Supreme Court on June 16 denied the government’s request to hear an appeal against the order for it to pay restructured creditors and holdouts simultaneously. The plaintiffs, who have waged a battle with Argentina in the New York courts, won a 2012 judgment for US$1.33 billion.

Argentina claims that if it pays the holdouts it would face a potential demand of up to US$15 billion from other holdouts not involved with the case, an amount representing more than half of the government’s US$28.5 billion in foreign currency reserves.

Analysts, however, say the US$15 billion figure could be too high. Moody’s Investors service said the claims could rise to US$7.5 billion if all the unrestructured debt under New York law are now claimed. That figure rises to US$12 billion, Moody’s said, if all holdout claims in US dollars and euros were to seek payment.

With Reuters

@ferminkoop