Tuesday, March 3, 2015

‘Me-too’ bondholders claim US$6 billion

Argentina and Citibank have asked US Judge Thomas Griesa to process Argentine-based payments.

Judge Griesa decides today if Citibank can process Argentine-law debt payments

On the last day possible before the deadline expired, the so-called “me-too” holdouts issued petitions to United States Judge Thomas Griesa yesterday worth up to US$6 billion, adding to the US$1.7 billion already granted by the US judge to the “vulture” funds, NML Capital and Aurelius.

A total of 150 petitions from investment funds were filed yesterday before Griesa, who had given them a deadline for all claims. Argentina now has until March 17, and the “vulture” funds until April 7, to file arguments over the standing of the “me-too” bondholders, before a final ruling by Griesa scheduled for the end of April.

The so-called “me-too” bondholders are a group of creditors who didn’t accept the terms of the 2005 and 2010 restructuring but have not taken legal action against the country and are thus not covered by Griesa’s initial ruling. Aside from the hedge funds, the other holdout creditors are a mix of individual and institutional investors from around the world.

Bracebridge, Blue Angel, EM Limited, Pérez, Lightwater, Old Castle, Aurelius, NML, Settin, Capital Ventures, Adami and FFI Fund are some of the holdouts that have filed motions and will be included in Griesa’s ruling in April.

Daniel Pollack, the court-appointed mediator, was given the authority by Griesa last year to include other holdouts in the negotiations in an effort to find a global settlement. Nevertheless, Argentina doesn’t acknowledge the “me-too” claim as they already have court judgments ordering the government to pay them money, according to Carmine Boccuzzi, a lawyer for Argentina.

EM Limited and NML Capital sent memorandums to Griesa two weeks ago asking him to move forward with the case through a partial summary judgement — a procedure to get a ruling on a case without a trial. Such procedure can only be applied when there’s a similar case that has already been solved, which in this case would be Griesa’s ruling on the “vulture” funds.

“The Court has held that Argentina has repeatedly violated — and continues to violate — the pari passu clause. Specifically, in thirteen cases concerning bonds on which Argentina defaulted,” NML said on the memorandum. “The bonds at issue in this case (of the “me-too”creditors) are subject to the same pari passu obligations. Therefore, the Court should grant plaintiff’s motion for partial summary judgment.”

Argentina refused last year to honour Griesa’s orders that it must pay the holdout hedge funds, led by NML Capital and Aurelius Capital Management, at the same time it pays bondholders who participated in the debt exchanges following the country’s earlier 2002 default. That order came after the US Supreme Court declined to hear Argentina’s appeal of Griesa’s ruling and settlement talks went nowhere.

The judge subsequently blocked Bank of New York Mellon Corp (BoNY) from processing a US$539 million payment that Argentina destined for its restructured creditors, resulting in a legal limbo. The country then passed legislation that allowed it to remove the BoNY as its fiduciary agent and establish local payment mechanisms for its restructured creditors for Par bond payments, leading Griesa to rule that the country was in contempt of court.

Citibank hearing

Argentina and Citibank will today ask Griesa to process payments on dollar-denominated, Argentine-law bonds, instead of issuing permits each time an interest payment is due, as has happened so far. The hearing will take place in Griesa’s court in New York and it will be attended also by the holdout funds.

The federal government and Citibank anticipated the hearing and sent letters to Griesa yesterday, saying that the bonds are not covered by the pari passu clause and because of that the payment should be authorized. The very existence of Citibank Argentina and it’s licence “are in jeopardy,” the bank said.

“We appreciate there are larger issues involving the Republic and Plaintiffs with which the court is concerned, but the hearing is not about the Republic. There’s simply no basis to place Citibank Argentina and its employees under such danger,” Citi’s lawyer Karen Wagner told Griesa in a letter, which the Herald had access to. “Argentine-law bonds are not subject to the pari passu clause and the injection doesn’t cover them or Citibank Argentina.”

The holdouts position regarding Citibank Argentina and Argentine-law bonds isn’t only wrong but would lead to “an entirely unfair and extremely harmful result for Citibank, an undisputed innocent party, and its employees,” Wagner said in the letter.

Back in December, Griesa called off a hearing scheduled for arguments over whether the bank could regularly process payments Argentina makes on the bonds and deferred hearings until 2015. He has consistently only allowed the honouring of commitments to bondholders under Argentine legislation on a “one-time basis,” since the country’s dispute with “vulture” funds saw an interruption in payments at the end of July, 2014.

Nevertheless, he has indicated that the arrangement won’t last long. In October 2014, after authorizing another one-time payment under Argentine law, Griesa stated that “further processes must proceed very promptly,” because “we do not want to be back here over and over when interest payments are due,” which might mean that today’s hearing will be used to decide the final outcome of the dispute.

“The US$8.4 billion in outstanding Argentine-law bonds are not external indebtedness and therefore are not covered by the pari passu clause in its express terms. That is so because all of the Argentine Law Bonds were offered exclusively in Argentina,” Argentina’s lawyers at Cleary Gottlieb Steen & Hamilton said yesterday.

Herald with DyN