Saturday, June 6, 2015

Griesa: Other ‘vultures’ owed US$5.4B

Judge again rules against Argentina, increasing country’s ‘vulture’ debt to US$7B

Argentina must pay US$5.4 billion to more than 500 “me-too” holders of defaulted debt before it can pay the majority of its creditors, United States Judge Thomas Griesa ruled yesterday, making the country’s debt with the holdout funds soar to US$7 billion following his previous order to pay Elliott and Aurelius Management US$1.6 billion, including interest.

The decision shows the government was right when it warned that the holdout funds wanted to use the courts to get more holders of defaulted debt to receive favourable rulings from the New York judge, the Economy Ministry said yesterday as it vowed to appeal.

Griesa’s decision in New York marks the latest development in the long-running litigation by creditors seeking full repayment on Argentina’s bonds and come as the “vulture” funds are waiting for another ruling from the US judge to extend payment blocks to more of the country’s dollar debt.

The so-called “me-too” bondholders are a group of creditors who did not 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.

A total 120 petitions from 526 plaintiffs had been filed before Griesa, who had set March 2 as the deadline for all claims. Most of them were filed by NML, Aurelius, Blue Angel, Lightwater, Blue Castle, Old Castle, Capital Ventures and EM, all major holdout funds which also represent smaller organizations.

Griesa said the “me-too” creditors held bonds similar to those owned by the hedge funds that started litigation against Argentina and thus should be treated the same way. The bonds, he said, contain a clause that requires payment at the same time as creditors who agreed to exchange their debt in 2005 and 2010 restructurings.

The Economy Ministry quickly criticized the ruling saying it proved the government had been right to object to those who had called for a quick resolution with the holdout funds.

“Griesa issued another regrettable ruling in favour of the holdout funds. The ‘me-too’ bondholders are seeking to get the same pari passu order but they aren’t new litigants, they are the same ‘vulture’ funds that want to create more pressure on Argentina,” the Economy Ministry said in a press release.

“Argentina was right. The claim that what the ‘vulture’ funds are demanding largely exceeds the US$1.6 billion (initial ruling) has now been proven and they don’t hesitate to use all the necessary means to extort Argentina. They use their financial and lobbying capacity and act against our creditors.”

The US judge said Argentina has violated that clause by refusing to pay the holdouts while attempting to pay the exchange bondholders, who hold about 92 percent of the defaulted debt worth around US$28 billion in outstanding principal.

“By making payments on this superior class of debt, the Republic has violated its promise to rank plaintiffs’ bonds equally with its later-issued external indebtedness,” Griesa wrote in a rulling that applies both to creditors who already hold money judgments in New York against Argentina and those who do not. “The court holds, in light of the Republic’s entire and continuing course of conduct, that it has breached the pari passu clause.”

Griesa’s decision came only a week after both sides argued the issue at his court room. Argentina’s lawyers warned that the amount of money in claims could increase if he ruled in favor of the holdouts, noting the US$10 billion in judgments against the country in New York federal court alone. Meanwhile, NML lawyers had said there was “no reason” for “me-too” bondholders not to get the same ruling as them.

“The ruling is a setback for the country but it’s not unexpected. It allows to consolidate the amount of claims in the negotiation. It can be appealed but it’s almost irreversible,” Eugenio Bruno, attorney specialized on sovereign debt issues and partner at Garrido law firm, told the Herald. “The next administration will face a tough negotiation.”

Argentina refused last year to honour Griesa’s orders that it must pay the holdout hedge funds, led by NML and Aurelius, at the same time it pays bondholders who participated in the debt exchanges following the country’s earlier 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 trustee 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.

‘Vultures’ seek to extend payment blocks

The “vulture” funds are expecting a “fairly” prompt decision from Griesa on their request to have payment blocks extended to more of the country’s dollar debt, including bonds issued last month, NML Capital lawyer Matthew McGill said yesterday.

McGill, representing NML Capital, an affiliate of billionaire Paul Singer’s Elliott Management hedge fund, said the bond recently issued by Argentina should be included in Griesa’s ban against Argentina’s debt because they had been offered internationally, not just in Argentina.

“We expect a ruling fairly shortly,” he told reporters on the sidelines of an event in London. “And that would kick off part 2 ... should all the other plaintiffs get the same injunction as us.”

Argentina issued US$1.4 billion in BONAR 2024 bonds last month to raise much needed money, using the fact they are governed by local law to side-step the US court order which blocks the country from making payments on its obligations without paying the holdouts as well.

NML Capital, Aurelius Capital and Blue Angel jointly asked Griesa to make the bonds subject to the prior court order which blocked Argentina from repaying its obligations until a settlement with them is reached. Even though Griesa hasn’t issued a ruling yet, he has clarified in the past that he did not yet see a reason to declare any of Argentina’s new bond issues illegal.

Herald with Reuters