Saturday, February 20, 2016

Griesa signals support for Argentina

Judge Thomas Griesa is seen entering his office two weeks ago.

US judge willing to lift debt injunction, says Macri’s election ‘changed everything’

The US judge overseeing the legal conflict between Argentina and holdout hedge funds that are suing the country over defaulted bonds yesterday sent a strong signal of support toward President Mauricio Macri’s administration, saying he would be willing to lift injunctions that restrict the country from servicing some of its debts, provided that certain conditions are met.

US District Judge Thomas Griesa said it would serve the public interest to lift the injunctions as long as Argentina repeals two laws concerning its debts and pays creditors who agree by February 29 to settle.

He also praised Argentina’s progress toward settling and the “sincerity and good faith” it has shown.

Griesa said in a ruling issued last night he would vacate the injunctions against the country only if Congress lifts the Padlock Law (Ley Cerrojo) and the Sovereign Payment Law.

He did warn, however, that he did not have the jurisdiction to vacate the injunctions now because of a pending appeal by Argentina with the 2nd US Circuit Court of Appeals in Manhattan.

But his decision is a victory for the country, which has been hamstrung from returning to global capital markets by his earlier rulings requiring that it fully pay holders of defaulted bonds that were not restructured in 2005 and 2010 debt swaps.

Griesa said a key turning-point was the recent election of President Mauricio Macri to succeed Cristina Fernández de Kirchner as Argentina’s president.

“Put simply, President Macri’s election changed everything,” Griesa wrote.

Fernández de Kirhcner refused to negotiate with holdouts, who she termed “vultures,” but Macri has worked toward settlements as part of his plan to improve the country’s economy.

Before debt talks during Macri’s administration, Argentina “never seriously” pursued negotiations, Griesa said — criticizing former president Fernández de Kirchner for “showing open contempt” for his rulings and “engaging in rhetoric” with the holdouts by calling them “vultures” or “financial terrorists.”

All that has now changed, he said.

“President Macri pledged during his campaign that he would seek to resolve these long-running lawsuits — and he has honored that promise,” Griesa said. “The court recognizes the republic’s earnest efforts to negotiate and its striking change in attitude toward settlement since Macri took office.”

Not lifting the injunctions would “unfairly deny” the plaintiffs that have accepted Argentina’s offer to resolve their disputes, the US judge said, adding that his decision would create an incentive for the remaining creditors to reach a deal, who “derive leverage” from the ability to prevent the government and other holdouts from consummating agreements.

“It is in the public interest for the Republic to resume paying its restructured debt. If the court vacates the injunctions, the Republic may once again pay the exchange bondholders — something that has not happened for nearly two years,” Griesa said.

The ruling was issued only hours after Argentina filed a brief at Griesa’s court to justify why the injunctions should be lifted. That suggest Griesa had already made up his mind on the case before reading the country’s statements, leaving Elliott and Aurelius, the two main holdout funds battling Argentina, in a much weaker position.

The judge’s order puts the ball in Argentina’s court as it will have to transfer about US$1.4 billion to the holdouts that accepted the debt hair cut and at the same time convince lawmakers to lift the two laws — something that won’t happen before March 1, when Congress resumes its sessions.

“Some plaintiffs may choose to reject the republic’s proposal. That is their right. But that does not diminish the court’s discretion to vacate the injunctions that would prevent resolution to a meaningful portion of this litigation,” Griesa said. “The court cannot countenance an equitable remedy that would allow some plaintiffs to hold other plaintiffs hostage.”

Of the approximately US$9 billion in claims, the Macri administration offered the creditors two weeks ago an average 25 percent debt discount, vowing to pay US$6.5 billion in cash by issuing bonds at an average six percent interest rate.

Funds EM and Montreux Capital had already accepted the deal before it was announced and other New York creditors followed suit, including Capital Markets. The government also reached a deal with holdouts in a US debt class action and with a group of 50,000 Italian creditors, who will get paid US$1.35 billion.

In his decision, Griesa praised court-appointed arbiter Daniel Pollack for having performed “with great skill,” and said his work “will undoubtedly be of great value in the ultimate resolution of this litigation. He has the thanks of the court.”

NML and lawyers for Argentina declined to comment.

Reasons behind the claim

The reasons given by Griesa to accept Argentina’s request are much similar to the ones mentioned in the brief filed by the government in the US court

“The time has come to vacate the injunctions,” lawyers from the Cravath, Swaine & Moore law firm representing the country in New York wrote in the brief.

Circumstances have now changed as the republic has undergone a “dramatic” reversal of its policy with the creditors, they claimed. Not lifting the injunctions would be “harmful” for the creditors who already have accepted Argentina’s offer, which is not an “ultimatum” and only a proposal.

“The republic has been completely excluded from the international capital markets since its default in 2001. The injunctions make it effectively impossible for Argentina to access them. Without access, the republic can’t finance payments to achieve a global resolution of the claims,” the brief said.

The brief came in reply to another one filed by Elliott and Aurelius on Thursday, which said the injunctions were necessary to keep Macri at the negotiating table and complained that Argentina hadn’t spent much time meeting with the bondholders before going public with a settlement offer they called an “ultimatum.”

Nevertheless, the holdouts also praised Macri.

“None of this is to say that the efforts of Argentina’s new government to resolve these long-pending cases are unwelcome. Quite the contrary, plaintiffs are encouraged by the engagement of Argentina’s new leadership and by its stated desire to reach agreements to solve the cases,” Aurelius and Elliott said.

Argentina met for eight hours with representatives from both holdout funds on Thursday, the government said in its brief, failing to give any details of the outcome of the talks. Aurelius head Mark Brodsky has openly criticized the government’s offer twice on the past two weeks, while Elliott’s head Paul Singer hasn’t made any statements.

Long-term case

The dispute in US courts is one of the longest in sovereign bond restructuring history, stemming from Argentina’s default on almost US$100 billion in 2001. Resolving the feud would enable the country to emerge from default and return to global credit markets, a goal promised by Macri as a presidential candidate.

Argentina refused in 2014 to heed Griesa’s orders to pay the holdout hedge funds, led by NML’s Elliott and Aurelius, at the same time as it paid bondholders who participated in the debt swaps following the country’s 2001 default.

That order came after the US Supreme Court declined to hear Argentina’s appeal of Griesa’s ruling and settlement talks went nowhere.

Former president Cristina Fernández de Kirchner wasn’t willing to pay the holdouts more than what was given to the creditors who entered into the 2005 and 2010 debt swaps. Negotiations were basically on hold until December 31, 2014 when the Rights Upon Future Offers (RUFO) clause expired. That clause prohibited Argentina from offering a better deal to those who rejected the 2005 and 2010 restructuring of defaulted debt

Herald staff