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

Monday, June 8, 2015

Kicillof: Griesa’s ruling proves we were right

Economy Minister Axel Kicillof (right) is pictured with Alejandro Vanoli during a summit organized by the Central Bank on Friday.

Economy Minister claims “me-too” decision vindicates government’s stance over ‘vulture funds’

The US$5.4 billion that United States Judge Thomas Griesa said on Friday Argentina owes to the so-called “me-too” bondholders is “dangerous for the international financial system” and can’t be paid by the government, Economy Minister Axel Kicillof said yesterday, stressing that the country had anticipated that this would happen.

“It’s clear that Argentina can’t issue that much money in debt to get rid of the problem. It’s a lot of money,” Kicillof said.

The judge ordered Argentina to pay more than 500 so-called “me-too” holders of defaulted debt at the same time as restructured creditors. The ruling pushed the total bill for holdout funds to US$7 billion, following Griesa’s previous order to pay Elliott and Aurelius Management US$1.6 billion, including interest.

“What’s happening now is what the government said would happen. It wasn’t just the US$1.6 billion of Paul Singer but a lot more money instead,” Kicillof said. “It was a trap by the ‘vulture’ funds. They wanted us to make a deal so later new bills of Singer would appear. The opposition economists fell into the trap, asking us to pay the holdouts.”

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 have been filed before Griesa, who had set March 2 as a deadline for those 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.

An ‘unusual’ ruling

Kicillof said the “vulture” funds were granted an “absolutely unusual” ruling from Griesa, which could be “dangerous” for the international financial system. Authorizing the bondholders that didn’t participate in the debt swap to claim bonds for 30 times more their value would make it impossible for the next country that defaults to negotiate a debt hair cut, Kicillof said, recalling that the IMF said the same in several summits.

“As Griesa now acknowledges for all creditors of Argentina the same terms as the ‘vulture’ funds, we will be asked to pay between US$15 billion and US$17 billion. That’s a lot of money considering that our foreign currency reserves are US$34 billion,” Kicillof said. “The most convenient thing to do is negotiating with all creditors and reach a deal that Argentina can pay.”

The country currently has US$24-billion-worth of debt still in default, including interest, with 66 percent of the bonds issued under New York legislation and 34 percent under European legislation, according to estimates by the Garrido law firm. Considering US$7 billion in claims have already been accepted by Griesa, that leaves a potential US$17 million pending.

The federal government has similar estimate,s as its lawyers in New York who work in the firm Cleary Gottlieb Steen & Hamilton have warned in hearings with Griesa there are US$10 billion in judgments against the country in New York federal courts alone. No country the size of Argentina could afford to pay that “without subjecting its economy and citizens to an unacceptable degree of catastrophic risk,” they argued at a recent hearing.

Kicillof said that the recent events show that “Argentina was right” when saying that other holdout funds would appear and asking to negotiate with all of them. The “vulture” funds tried to show that the amount to pay was small compared to the foreign currency reserves so to make the country pay before other creditors would show up, the Economy Minister said.

“Not all the ‘me-too’ bondholders have showed their faces. Griesa is making them appear gradually so not to make it obvious that his ruling is an aberration. This is an scandal,” Kicillof said. “If Argentina takes new debt to pay them, international agencies would make the government implement adjustments and privatize state companies.”

Herald staff with DyN