02-04-2013, 10:15 AM
This is my first thread. Pls amend if title is inappropriate or in wrong sub-forum
I find this Argentina debt problem extremely interesting:
1) It involves sovereignty. Classically no country can demand repay of debt just as no country can demand recourse for nationalisation. Think Russia debt crisis. However the practical issue is Argentina has been relying on foreign koolaid for as long as I can remember, especially US. Which is why there is a pressure to bow.
http://www.csmonitor.com/World/Americas/...e-a-nation
2) National asset can actually be seized. They seized an Argentina navy ship.
http://www.ft.com/intl/cms/s/0/edb12a4e-...z2PGgDr800
3) The concept of pari passu even when EU nor ECB respected that
4) Minority bondholders can hold majority bondholders hostage
Argentina ‘Greek Tragedy’ Nears End as Debt Battle Ruling Looms
2013-03-31 23:00:00.3 GMT
By Bob Van Voris
April 1 (Bloomberg) -- Argentina may learn at any time
whether a U.S. appeals court will rule that it must pay
$1.4 billion to holders of its defaulted debt, something the
South American country has resisted for more than a decade.
The court in New York is set to rule after Argentina
submitted a payment proposal last week that would force holders
of defaulted bonds to take a steep discount on debt the nation
repudiated in its record 2001 default on $95 billion. With
further appeals unlikely to succeed, the ruling may be the
last word on the matter.
Argentina’s proposal largely ignored previous U.S. court
rulings and instead offered the type of restructuring deal that
has been rejected by holdout bondholders led by billionaire
hedge fund manager Paul Singer and his Elliott Management Corp.
unit NML Capital Ltd. The proposal sets up a possible collision
between Argentine politicians and U.S. judges that has been a
decade in the making.
“This has some Greek tragedy elements to it,” said Anna
Gelpern, a law professor at American University in Washington
who is an expert on government debt. “The parties are bound to
play along and succumb to their fates.” Joshua Rosner, an
analyst at Graham Fisher & Co., said in an e-mailed note March
30 that Argentina’s last-minute proposal is the equivalent of
the nation “thumbing its nose at” the court.
A decision forcing Argentina to pay the defaulted
bondholders immediately would expose it to $43 billion in
additional claims it can’t pay and trigger a new default, the
government has warned. The nation’s officials have also said
they may ignore the U.S. court altogether.
Repudiated Bonds
In its proposal, Argentina said it would give holders of
the repudiated bonds about one-sixth of what a U.S. judge has
said they’re entitled to receive. The country’s proposed plan,
filed March 29--one hour before a deadline set by the court
weeks ago--offers two possibilities for holdout bondholders to
exchange their defaulted debt for new bonds.
“After taking the full month available to work on its
response, Argentina came back last night with a proposal for
exactly the same package that it had offered back in 2010,” Joe
Kogan, head of emerging-market debt strategy at Scotia Capital
Markets, said in a note March 30. Kogan said he expects the
country’s bonds to fall “upon news of Argentina’s continued
intransigence.”
‘Argentine Consumption’
“The proposal itself appears intended for local Argentine
consumption,” Kogan said. Argentine officials said they will
submit a bill to their nation’s Congress to provide for the plan
to be implemented.
Though Argentina could file an appeal of any adverse ruling
by the three-judge appellate panel to a larger number of judges,
or the U.S. Supreme Court, it’s unlikely to be granted either
because contract issues in the case were based on New York state
law. As a result, it’s improbable they would be reviewed by the
Supreme Court, said Henry Weisburg, an international litigator
at New York-based Shearman & Sterling LLP.
Argentina’s best bet for high court review may lie with the
Foreign Sovereign Immunities Act, a federal law that limits
suits against foreign governments. However, Weisburg said it’s
unlikely the court will choose to consider the case on that
ground either.
Argentina’s top leaders have vowed never to pay the hedge
funds, which it calls “vulture” investors, that hold the debt.
Not Obey
Jonathan Blackman, the attorney for the South American
nation, has said Argentina would default on its restructured
debt if it’s forced by the panel to pay so-called vultures.
“So the answer is you will not obey any order but the one
you propose?” U.S. Circuit Judge Reena Raggi asked Blackman
during oral arguments in February.
“We would not voluntarily obey such an order,” Blackman
said, with Hernan Lorenzino, Argentina’s minister of economy,
and Vice President Amado Boudou sitting nearby.
Blackman argued that a lower-court order obliging Argentina
to pay the defaulted bonds whenever it makes payments on
restructured debt violated its sovereignty, threatens to trigger
a new financial crisis and would quadruple the number of
Argentine bond cases in New York federal court.
“If that’s the confrontation the court seeks with the
injunctions, that is the court’s decision,” Blackman said.
“We’re representing a government and governments will not be
“We’re representing a government and governments will not be
told to do things that fundamentally violate their principles.”
The holdout creditors are seeking to uphold rulings by U.S.
District Judge Thomas Griesa in Manhattan, who has presided over
the case for a decade. Griesa has ruled that Argentina must pay
holdouts the full amount they’re owed whenever it makes a
required payment to the holders of the exchange bonds.
The Exchange Bondholder Group, who took the deal offered by
Argentina for their bonds, claimed the ruling threatens their
investment.
‘Innocent Parties’
“We’re innocent parties,” attorney David Boies argued for
the Exchange Bondholder Group at the oral arguments. Griesa’s
order shouldn’t apply to restructured debt holders, he said.
“If you allow Judge Griesa’s injunction to exist unchanged,
everybody in this courtroom knows what’s going to happen,”
Boies argued. “Argentina is going to default.”
In a related case, the U.S. Court of Appeals said March 26
that it won’t grant a full-court reconsideration of an earlier
ruling barring Argentina from treating restructured-debt holders
more favorably than holders of the repudiated debt.
In November, Griesa quizzed a lawyer for Argentina about
press statements by President Cristina Fernandez De Kirchner and
Lorenzino that the republic wouldn’t pay “vulture funds.”
Unknown Intentions
“I don’t know literally what the intentions of the
republic are,” Griesa said in the Nov. 9 hearing. “But I have
had some modest amount of experience, and that is that the
republic will not comply with the judgments which have been
entered against it.”
The three judges on the appeals panel are Rosemary Pooler,
appointed by President Bill Clinton; and Barrington Parker and
Raggi, both named to the court by George W. Bush.
In a press conference March 30 in Buenos Aires, Boudou said
the country won’t issue more debt to repay old debt as part its
proposal. The Argentina vice president said the Griesa ruling
it’s fighting would mean a 1,300% gain in five years for
holdouts.
According to Argentina, the payment formula it’s
challenging, set by Griesa, would give NML Capital $720 million.
That compares with an estimated value of $120.6 million for NML
under one of the payment alternatives the nation is proposing,
the so-called discount option.
‘Fair Return’
“Argentina’s proposal accounts for past-due amounts to
bring the debt current, provides for a fair return going forward,
and also gives an upside in the form of annual payments if
Argentina’s economy grows,” the country’s lawyers said in its
proposal. It “fulfills the court’s dual objectives to satisfy
the pari passu clause: non-discrimination in payment priority
and equal treatment among bondholders.”
In 2005 and 2010, Argentina offered its creditors new bonds,
at a deep discount. About 91 percent of bondholders agreed to
the debt restructuring, or exchange.
NML and other holdouts have tried to use U.S. courts to
enforce their rights under the original bond agreements.
In its proposal to the court, Argentina estimated that NML
paid $48.7 million for the bonds in 2008.
“The formula adopted by the district court would cause
great harm to the exchange bondholders while giving plaintiffs a
return that is exorbitant on its face,” Argentina said.
Argentina’s legislature in 2005 passed a so-called lock law
barring payment on the defaulted bonds.
Par Option
Under Argentina’s proposal, a so-called par option, which
is intended for small accountholders, would give bondholders new
bonds due in 2038 in a nominal face amount equal to the amount
of their defaulted debt, plus unpaid interest up to the end of
2001. The par bonds would pay interest that rises from 2.5
percent to 5.25 percent a year over the life of the bonds. They
would also receive a one-time cash payment to compensate for
interest they would have earned if the bonds had been issued on
Dec. 31, 2003, according to the letter.
The holders would receive additional payments when the
Argentine gross domestic product growth exceeds about 3 percent
a year, the government said in the letter.
The discount option would give bondholders discount bonds
due in 2033, less than the defaulted amount, with an 8.28
percent annual rate and an increase in principal over time. They
would be compensated for past due interest on those bonds with
new bonds due in 2017 that pay 8.75 percent annually, according
to the letter.
The holders would also receive GDP-tied payments, according
to the proposal.
No Better Terms
“It is our hope that the plaintiffs will finally join the
92% of creditors, accept this fair and equitable offer and put
this difficult period to rest,” said Sean O’Shea, a lawyer for
the exchange bondholders, in an e-mailed statement March 30.
Argentina said its proposal wouldn’t allow the plaintiffs
in the lawsuit to force it to offer payment on better terms than
those received by bondholders who agreed to the restructuring.
Eugenio Bruno, an attorney at the Buenos Aires law firm
Estudio Garrido, said in an e-mail that Argentina’s proposal is
similar to past debt-restructuring offers by the country that
have been rejected by NML and the other holdouts.
If the government were to offer a better deal, it would
trigger provisions allowing holders of the exchange bonds to
take advantage of more favorable terms offered to the holdouts,
he said.
Supports Country
Bruno represents Alfonso Prat-Gay, a former governor of
Argentina’s central bank, who submitted a brief in the case
supporting his country’s effort to overturn the lower U.S. court
ruling. Bruno said he also advises exchange bondholders and
holdouts who aren’t involved in litigation.
Following the oral arguments, the three judge panel ordered
Argentina March 1 to provide a suggested formula for paying the
creditors. Argentina’s lawyer, at the Feb. 27 arguments in
Manhattan, “appeared to propose” an alternative to the payment
formula devised by Griesa, according to the appeals court.
The judges may ask for a response from the creditors to the
new proposal, or come to a decision without one.
The lower court case is NML Capital Ltd. v. Republic of
Argentina, 08-06978, U.S. District Court, Southern District of
New York (Manhattan). The appeal is NML Capital Ltd. v. Republic
of Argentina, 12-00105, U.S. Court of Appeals for the Second
Circuit (New York).
I find this Argentina debt problem extremely interesting:
1) It involves sovereignty. Classically no country can demand repay of debt just as no country can demand recourse for nationalisation. Think Russia debt crisis. However the practical issue is Argentina has been relying on foreign koolaid for as long as I can remember, especially US. Which is why there is a pressure to bow.
http://www.csmonitor.com/World/Americas/...e-a-nation
2) National asset can actually be seized. They seized an Argentina navy ship.
http://www.ft.com/intl/cms/s/0/edb12a4e-...z2PGgDr800
3) The concept of pari passu even when EU nor ECB respected that
4) Minority bondholders can hold majority bondholders hostage
Argentina ‘Greek Tragedy’ Nears End as Debt Battle Ruling Looms
2013-03-31 23:00:00.3 GMT
By Bob Van Voris
April 1 (Bloomberg) -- Argentina may learn at any time
whether a U.S. appeals court will rule that it must pay
$1.4 billion to holders of its defaulted debt, something the
South American country has resisted for more than a decade.
The court in New York is set to rule after Argentina
submitted a payment proposal last week that would force holders
of defaulted bonds to take a steep discount on debt the nation
repudiated in its record 2001 default on $95 billion. With
further appeals unlikely to succeed, the ruling may be the
last word on the matter.
Argentina’s proposal largely ignored previous U.S. court
rulings and instead offered the type of restructuring deal that
has been rejected by holdout bondholders led by billionaire
hedge fund manager Paul Singer and his Elliott Management Corp.
unit NML Capital Ltd. The proposal sets up a possible collision
between Argentine politicians and U.S. judges that has been a
decade in the making.
“This has some Greek tragedy elements to it,” said Anna
Gelpern, a law professor at American University in Washington
who is an expert on government debt. “The parties are bound to
play along and succumb to their fates.” Joshua Rosner, an
analyst at Graham Fisher & Co., said in an e-mailed note March
30 that Argentina’s last-minute proposal is the equivalent of
the nation “thumbing its nose at” the court.
A decision forcing Argentina to pay the defaulted
bondholders immediately would expose it to $43 billion in
additional claims it can’t pay and trigger a new default, the
government has warned. The nation’s officials have also said
they may ignore the U.S. court altogether.
Repudiated Bonds
In its proposal, Argentina said it would give holders of
the repudiated bonds about one-sixth of what a U.S. judge has
said they’re entitled to receive. The country’s proposed plan,
filed March 29--one hour before a deadline set by the court
weeks ago--offers two possibilities for holdout bondholders to
exchange their defaulted debt for new bonds.
“After taking the full month available to work on its
response, Argentina came back last night with a proposal for
exactly the same package that it had offered back in 2010,” Joe
Kogan, head of emerging-market debt strategy at Scotia Capital
Markets, said in a note March 30. Kogan said he expects the
country’s bonds to fall “upon news of Argentina’s continued
intransigence.”
‘Argentine Consumption’
“The proposal itself appears intended for local Argentine
consumption,” Kogan said. Argentine officials said they will
submit a bill to their nation’s Congress to provide for the plan
to be implemented.
Though Argentina could file an appeal of any adverse ruling
by the three-judge appellate panel to a larger number of judges,
or the U.S. Supreme Court, it’s unlikely to be granted either
because contract issues in the case were based on New York state
law. As a result, it’s improbable they would be reviewed by the
Supreme Court, said Henry Weisburg, an international litigator
at New York-based Shearman & Sterling LLP.
Argentina’s best bet for high court review may lie with the
Foreign Sovereign Immunities Act, a federal law that limits
suits against foreign governments. However, Weisburg said it’s
unlikely the court will choose to consider the case on that
ground either.
Argentina’s top leaders have vowed never to pay the hedge
funds, which it calls “vulture” investors, that hold the debt.
Not Obey
Jonathan Blackman, the attorney for the South American
nation, has said Argentina would default on its restructured
debt if it’s forced by the panel to pay so-called vultures.
“So the answer is you will not obey any order but the one
you propose?” U.S. Circuit Judge Reena Raggi asked Blackman
during oral arguments in February.
“We would not voluntarily obey such an order,” Blackman
said, with Hernan Lorenzino, Argentina’s minister of economy,
and Vice President Amado Boudou sitting nearby.
Blackman argued that a lower-court order obliging Argentina
to pay the defaulted bonds whenever it makes payments on
restructured debt violated its sovereignty, threatens to trigger
a new financial crisis and would quadruple the number of
Argentine bond cases in New York federal court.
“If that’s the confrontation the court seeks with the
injunctions, that is the court’s decision,” Blackman said.
“We’re representing a government and governments will not be
“We’re representing a government and governments will not be
told to do things that fundamentally violate their principles.”
The holdout creditors are seeking to uphold rulings by U.S.
District Judge Thomas Griesa in Manhattan, who has presided over
the case for a decade. Griesa has ruled that Argentina must pay
holdouts the full amount they’re owed whenever it makes a
required payment to the holders of the exchange bonds.
The Exchange Bondholder Group, who took the deal offered by
Argentina for their bonds, claimed the ruling threatens their
investment.
‘Innocent Parties’
“We’re innocent parties,” attorney David Boies argued for
the Exchange Bondholder Group at the oral arguments. Griesa’s
order shouldn’t apply to restructured debt holders, he said.
“If you allow Judge Griesa’s injunction to exist unchanged,
everybody in this courtroom knows what’s going to happen,”
Boies argued. “Argentina is going to default.”
In a related case, the U.S. Court of Appeals said March 26
that it won’t grant a full-court reconsideration of an earlier
ruling barring Argentina from treating restructured-debt holders
more favorably than holders of the repudiated debt.
In November, Griesa quizzed a lawyer for Argentina about
press statements by President Cristina Fernandez De Kirchner and
Lorenzino that the republic wouldn’t pay “vulture funds.”
Unknown Intentions
“I don’t know literally what the intentions of the
republic are,” Griesa said in the Nov. 9 hearing. “But I have
had some modest amount of experience, and that is that the
republic will not comply with the judgments which have been
entered against it.”
The three judges on the appeals panel are Rosemary Pooler,
appointed by President Bill Clinton; and Barrington Parker and
Raggi, both named to the court by George W. Bush.
In a press conference March 30 in Buenos Aires, Boudou said
the country won’t issue more debt to repay old debt as part its
proposal. The Argentina vice president said the Griesa ruling
it’s fighting would mean a 1,300% gain in five years for
holdouts.
According to Argentina, the payment formula it’s
challenging, set by Griesa, would give NML Capital $720 million.
That compares with an estimated value of $120.6 million for NML
under one of the payment alternatives the nation is proposing,
the so-called discount option.
‘Fair Return’
“Argentina’s proposal accounts for past-due amounts to
bring the debt current, provides for a fair return going forward,
and also gives an upside in the form of annual payments if
Argentina’s economy grows,” the country’s lawyers said in its
proposal. It “fulfills the court’s dual objectives to satisfy
the pari passu clause: non-discrimination in payment priority
and equal treatment among bondholders.”
In 2005 and 2010, Argentina offered its creditors new bonds,
at a deep discount. About 91 percent of bondholders agreed to
the debt restructuring, or exchange.
NML and other holdouts have tried to use U.S. courts to
enforce their rights under the original bond agreements.
In its proposal to the court, Argentina estimated that NML
paid $48.7 million for the bonds in 2008.
“The formula adopted by the district court would cause
great harm to the exchange bondholders while giving plaintiffs a
return that is exorbitant on its face,” Argentina said.
Argentina’s legislature in 2005 passed a so-called lock law
barring payment on the defaulted bonds.
Par Option
Under Argentina’s proposal, a so-called par option, which
is intended for small accountholders, would give bondholders new
bonds due in 2038 in a nominal face amount equal to the amount
of their defaulted debt, plus unpaid interest up to the end of
2001. The par bonds would pay interest that rises from 2.5
percent to 5.25 percent a year over the life of the bonds. They
would also receive a one-time cash payment to compensate for
interest they would have earned if the bonds had been issued on
Dec. 31, 2003, according to the letter.
The holders would receive additional payments when the
Argentine gross domestic product growth exceeds about 3 percent
a year, the government said in the letter.
The discount option would give bondholders discount bonds
due in 2033, less than the defaulted amount, with an 8.28
percent annual rate and an increase in principal over time. They
would be compensated for past due interest on those bonds with
new bonds due in 2017 that pay 8.75 percent annually, according
to the letter.
The holders would also receive GDP-tied payments, according
to the proposal.
No Better Terms
“It is our hope that the plaintiffs will finally join the
92% of creditors, accept this fair and equitable offer and put
this difficult period to rest,” said Sean O’Shea, a lawyer for
the exchange bondholders, in an e-mailed statement March 30.
Argentina said its proposal wouldn’t allow the plaintiffs
in the lawsuit to force it to offer payment on better terms than
those received by bondholders who agreed to the restructuring.
Eugenio Bruno, an attorney at the Buenos Aires law firm
Estudio Garrido, said in an e-mail that Argentina’s proposal is
similar to past debt-restructuring offers by the country that
have been rejected by NML and the other holdouts.
If the government were to offer a better deal, it would
trigger provisions allowing holders of the exchange bonds to
take advantage of more favorable terms offered to the holdouts,
he said.
Supports Country
Bruno represents Alfonso Prat-Gay, a former governor of
Argentina’s central bank, who submitted a brief in the case
supporting his country’s effort to overturn the lower U.S. court
ruling. Bruno said he also advises exchange bondholders and
holdouts who aren’t involved in litigation.
Following the oral arguments, the three judge panel ordered
Argentina March 1 to provide a suggested formula for paying the
creditors. Argentina’s lawyer, at the Feb. 27 arguments in
Manhattan, “appeared to propose” an alternative to the payment
formula devised by Griesa, according to the appeals court.
The judges may ask for a response from the creditors to the
new proposal, or come to a decision without one.
The lower court case is NML Capital Ltd. v. Republic of
Argentina, 08-06978, U.S. District Court, Southern District of
New York (Manhattan). The appeal is NML Capital Ltd. v. Republic
of Argentina, 12-00105, U.S. Court of Appeals for the Second
Circuit (New York).
Since nobody seemed to be interested so I had not updated. Key here is Argentina need foreign capital whereas Russia exports energy which people need. Just like companies that need capital need to make capital markets happy. Companies that don't need capital TENDS not to care as much, unless the major shareholders have other ideas.