Argentina makes case in holdout row

No big surprises in the flurry of briefs in Argentina’s debt holdout saga then.

A quick recap: a US appeals court on October 26 upheld a court ruling by New York Judge Thomas Griesa that opened the door to Argentina making some payment of the “holdout” creditors led by Elliott’s NML Capital, which spurned its 2005 and 2010 restructurings of the nearly $100bn on which it defaulted in 2001. Judge Griesa had ruled on the basis of an “equal treatment” clause.

But the appeals court sent the ruling back to the judge to clarify the payment mechanism and its impact on third parties.

Everyone but NML had to submit their briefs by midnight on November 16; Elliott replies on Monday and the judge has said he will then seek to rule “well in advance” of the first of three upcoming Argentine debt payment starting on December 2.

One of the key concerns expressed by the parties is whether Judge Griesa will lift a stay freezing payment of the plaintiffs before the case goes back to the appeals court.

Here is a quick synthesis:

1. Fair treatment, false urgency?: Argentina, as expected, told New York Judge Thomas Griesa in its brief filed about a quarter of an hour before the deadline that it had offered NML Capital, the US fund it calls a “vulture”, equitable treatment when it offered to restructure its defaulted debt. “They cannot now use that refusal as a basis for obtaining, in the name of ‘equal treatment’, far better treatment than the exchange bondholders” it said in its brief. It said the plaintiffs were trying to whip up “false urgency” and urged the judge to “allow the Republic and all potentially affected third parties to prosecute their appeal rights before any orders go into effect”.

2. “Magic pot of money”: NML reckons that with more than $45bn in central bank reserves, Argentina can more than afford to pay. That’s not the point, argues Argentina, adding that reserves are not “a magic pot of money to be tapped by plaintiffs”. It added: “Plaintiffs’ unprecedented demand for over one billion dollars from the fiscal reserves of a foreign state, with further demands to follow as more ‘me too’ plaintiffs pile in, had the immediate, intended effect on the market of sending it into disarray,” it said.

3. Not Argentina’s agent: The court can’t touch payments to the exchange bondholders via the Bank of New York Mellon because there is “not a scintilla of evidence” that it is an agent of the Argentine republic, Argentina says. BNYM, which is the agent of the bondholders and their trustee, Argentina argued, agreed wholeheartedly with this point in its own brief. An “erroneous ruling” could cause grave injury to exchange bondholders, the BNYM and financial institutions, Argentina added.

4. Between a rock and a hard place: that’s where BNYM considers itself to be: If money sent by Argentina via BNYM to pay the exchange bondholders is diverted to pay holdouts, then it is breaching its trustee duties to the exchange bondholders; if the court rules that holdouts must be paid but BNYM pays the exchange bondholders normally, it would be in contempt of court. “Simply put, BNY Mellon could be subject to multiple conflicting obligations, with a threat of contempt, on the one hand, and a claim for breach of the Indenture [its contract to pay exchange bondholders],” it said in its brief, and appealed for the court to spell out how it should act and also “confirm that BNY Mellon is under no obligation under the terms of the Indenture to make payments to the Holders in the event that Argentina violates the terms of the Injunction [i.e - if Argentina is ordered to pay the holdouts but does not]”.

5. We’re not the cheese: The exchange bondholders (EBH), led by Gramercy and representing more than $1bn of exchange bonds, amassed a group of other creditors (and said eight others were interested in joining but had not had time). They feel caught in the crossfire between Argentina and NML. But as they said in their brief: “A judicial mousetrap designed to secure a remedy for the Plaintiffs is entirely appropriate. But the EBHs’ lawful and exclusive property cannot and should not be used as the cheese.” In a court hearing a week ago, Judge Griesa appeared to give short shrift to the exchange creditors.

6. Snowballing crisis: If Argentina decides not to transfer the money due to the exchange bondholders to BNYM in order to get around any court order, then brace yourselves for “a cataclysmic default that will further unsettle the already fragile global economy, and unquestionably spur an avalanche of follow-on litigation involving the EBHs, multiple banks, and the Republic, which may be the intended consequence of Plaintiffs’ motion” , the exchange creditors said. Their brief added: “Plaintiffs will therefore be successful in their efforts to goad this Court into “solving” a $1.3 billion problem affecting fewer than 0.92% of the original foreign denominated Bondholders, by creating a potential over $20 billion problem affecting 100% of the Republic’s Bondholders (to say nothing of the collateral effects on the skittish and frail international markets).”

7. We’re pensioners, not vultures: Law firm Duane Morris filed an amicus brief in support of NML, saying it represented Italian defaulted bondholders, many of them retirees, who were real people not “vultures” – the term the Argentine government uses for funds like NML which picked up some of its defaulted debt for pennies after Argentina’s crash. It supports NML in the face of Argentina’s “recalcitrance”.

8. Affadavit: Judge Griesa had sought an affidavit from Argentina that it would comply with court rulings and not seek to evade them. Francisco Eggers, the national director of Argentina’s National Bureau of Public Credit supplied it. However, Cristina Fernández, the president, and other government officials have vowed not to pay vultures a single dollar.

The saga continues.

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