Wednesday, February 18, 2015

‘The ruling told Griesa he isn’t the world’s judge’

By Fermín Koop
Herald Staff

A new chapter in the seemingly never-ending conflict with the holdout funds was launched last week when a London court said interest payments on euro-denominated Argentine government bonds are governed by English law. As the judge refused to order Bank of New York Mellon (BoNY) to make good on the US$257 million in restructured sovereign bond payments, the issue itself remains to be solved and could open a legal battle between the United States and the British courts.

In an interview with the Herald, Sebastián Soler, a lawyer specializing in financial law and a former adviser to the Central Bank, said the British court ruling would be issued this year and that the most “reasonable” outcome would be for the BNY to be authorized to distribute the funds. Soler also said there’s currently no negotiation with the holdouts and that acceleration, which would require Argentina to pay its bonds in full, remains a risk.

What’s your analysis of last week’s ruling by the judge in London?

It’s good news for Argentina and it shows the adverse effects of Griesa’s ruling, which in this case would seem to imply a legal conflict between the United States and British jurisdictions. The ruling helped to tell Griesa he isn’t the world’s judge and to demonstrate that the funds are not property of Argentina, they are owned by the bondholders. Now there’s an ongoing trial and the issue itself has yet to be solved. That will probably happen some time this year and the most reasonable thing would be to order the Bank of New York to issue the payments.

Looking at the short term, what are the effects of last week’s ruling?

It’s a long process that’s constantly changing. Some analysts forecast terrible outcomes for Argentina but that never happened.

If the BoNY finally receives the order to pay the bondholders, will it follow it or choose to obey Griesa instead?

The Bank of New York will be forced to comply with the judgment of the UK court. If it chooses not to, the bank will have to face the consequences of disobeying. If I were their lawyer, I would tell them there’s no doubt that they have to obey the ruling. The bank has the option of going to the Appeals Court if Griesa sanctions them for contempt of court. Nevertheless, the most likely thing to happen is Griesa acknowledging he can’t do anything about it because it’s a UK ruling.

Is negotiating with the holdouts still an option?

Special Master Daniel Pollack hasn’t called for a new meeting yet. Argentina stated its position and made a proposal for a new debt swap so now it’s up to the “vulture” funds to change their stance. They want to be paid in full according to Griesa’s ruling but the government has already said that’s not going to happen. The only reasonable proposal is the Sovereign Payment Law that opens a new debt swap.

Has anything changed since the Rights Upon Future Offers (RUFO) expired a month ago?

Thanks to ignoring those who suggested paying Griesa’s sentence, Argentina avoided the enormous risks that would have meant paying the “vultures” anything different from what the bondholders that participated in the 2005 and 2010 debt swaps received. Now that risk is long gone and any future negotiation would be carried out without it. Since the government hasn’t changed its stand after the clause expired, the “vulture” funds should consider changing theirs.

Does acceleration remain a risk?

Yes, the risk still exists. It's a right the bondholders have and it would not be acknowledged by the government as the funds have already been paid. It seems most of the bondholders don’t see the acceleration as the best option. And they are right as the price of Argentine bonds is much higher than when Griesa issued his ruling.

The American Task Force Argentina (ATFA), the holdout’s lobby group, released a report last week on the increase in wealth of various federal government officials. Are they trying to increase the pressure on the country to get paid?

It’s a pathetic, desperate and disgusting last-gasp move. Federal government officers always file their affidavits and they are open for everyone to see them. The report shows they are desperate and they actually don’t want to negotiate with the government as they have other hidden agendas. A bondholder that supposedly wants to negotiate doesn’t criticize government officials with whom he has to negotiate. The holdouts aren’t really interested in a negotiation.

The holdouts are also trying to get discovery rights on Argentine assets abroad, in order to seize them later. What are the chances of that actually happening?

The United States legal system allows the holdouts to ask the courts for information on Argentine assets. Nevertheless, that doesn’t mean they can seize the assets easily. In order to be seized, the assets have to be owned by Argentina, located in the US and used for commercial purposes.

The United Nations is moving quickly with a new sovereign debt framework as the ad hoc committee has already started its meetings. What will be the next step?

It’s an accomplishment of the Argentine diplomacy having moved forward so fast with the debate of a new sovereign debt framework. I initially expected it to take more time. Now we’ll have to see the details of the framework.

@ferminkoop