Latin America’s two biggest
countries are throwing their support behind Argentina in its
legal dispute with disgruntled creditors, boosting optimism the
nation will stave off a second default in 13 years.
Brazil and Mexico filed briefs supporting Argentina, which
has asked the U.S. Supreme Court to review lower-court orders
blocking the country from making payments on its restructured
debt unless it pays claims from its 2001 default in full to
creditors including billionaire hedge-fund manager Paul Singer’s
Elliott Management Corp. Those rulings, if left intact, would
set a precedent that will make it harder for countries to
renegotiate defaulted debt, Brazil and Mexico said.
JPMorgan Chase Co. and Credit Suisse Group AG say the
regional support bolsters the odds the Supreme Court will ask
for the opinion of President Barack Obama’s administration,
which may push back the conclusion of the case to as late as
next year. The speculation is bolstering a gain in Argentine
bonds, whose 4.6 percent increase this month is the biggest
among emerging-market nations tracked by JPMorgan.
“They’ll show to the Supreme Court that this is a global
issue rather than just a matter of rule of law of the U.S.,”
Daniel Chodos, a strategist at Credit Suisse, said in an e-mailed response to questions. “They will likely get the
attention of the Supreme Court.”
French Support
Stephen Spruiell, a spokesman at Elliott, didn’t return a
voicemail and e-mail seeking comment on the briefs.
Jesica Rey, a spokeswoman for Argentina’s Economy Ministry,
didn’t reply to an e-mail seeking comment.
Brazil filed a friend-of-the-court brief yesterday in
support of Argentina’s request, saying that if upheld, “the
injunctions will cast a shadow over the entire global sovereign
debt market.”
In its brief, Mexico said the appeals court decision “has
empowered private bondholders to jeopardize the economy of a
sovereign nation.”
France said in a brief filed yesterday that the decision
would have “adverse consequences” on a country’s ability to
engage in orderly and negotiated debt restructurings as a means
to prevent default. Nobel laureate Joseph Stiglitz submitted a
brief backing Argentina as well.
So-called amicus briefs were due yesterday and require
notification of the attorneys in the case 10 days before their
due date. Holders of defaulted bonds have until May 7 to reply.
Argentina defaulted on $95 billion of bonds in 2001. While
about 93 percent of creditors accepted losses of 70 cents on the
dollar in the country’s 2005 and 2010 debt restructurings,
holdout investors sued for full repayment.
Never Pay
Under the Aug. 23 appeals court decision, Argentina must
treat all of its creditors equally and can’t pay investors who
accepted the terms of the restructuring while denying payments
to those who didn’t. Argentine President Cristina Fernandez de Kirchner has vowed never to offer better terms to creditors
she’s dubbed “vultures.”
The South American nation argues that the ruling violates
its sovereignty and that the appellate court didn’t properly
apply the Foreign Sovereign Immunities Act, which limits
lawsuits against foreign governments.
“They coerce a foreign sovereign into satisfying a money
debt with immune assets,” Argentina wrote in its petition.
The briefs by Mexico, Brazil and France may compel the
highest court to ask the solicitor general, the federal
government’s top Supreme Court lawyer, to express an opinion at
this stage of the case, according to Vladimir Werning, an
economist at JPMorgan.
‘Event Risk’
If asked, Solicitor General Donald Verrilli would have no
deadline for filing his brief, although his office generally
tries to file briefs in time for the court to act before its
nine-month term ends in late June. The Supreme Court granted
Elliott a 44-day extension for filing its reply to Argentina’s
petition. Given the delays, it’s becoming more likely litigation
will be extended into 2015, Werning said.
“For the market, the longer horizon in which this issue
will be dealt with reduces near-term event risk,” Werning said
in a telephone interview from New York. “Things can drag on
here. That’s positive.”
In April 2012, the U.S. government sided with Argentina in
its lower-court appeal, saying that if upheld, the orders could
hurt other restructurings by rewarding investors who hold out
while punishing participants. The Obama administration also
called the orders “impermissibly broad” and harmful to U.S.
foreign relations.
Paris Club
Jorge Mariscal, regional chief investment officer for
emerging markets at UBS Wealth Management, says the support from
Brazil, Mexico and France may not be as influential as
bondholders would like.
“This is a highly politicized issue, and the U.S. Supreme
Court knows this well,” Mariscal, whose firm oversees about $1
trillion, said in an e-mailed response to questions.
“Therefore, while making headlines, the amicus briefs are
unlikely to provide sufficiently strong legal arguments to sway
their decision.”
Even if the briefs fail to persuade the Supreme Court, the
growing support from other countries reflects the efforts taken
by Argentina to repair ties overseas, according to Joaquin Almeyra, a fixed-income trader at Bulltick Capital Markets.
The Paris Club of creditor nations on March 14 invited
Argentina to begin formal negotiations in May to settle its
outstanding debt after government officials traveled to France
to present an initial proposal. France is doing everything it
can to speed up the negotiations, President Francois Hollande
said at a March 19 press conference in Paris.
“What’s important is that Argentina is gathering allies
and looking for solutions to its credit and investment
problems,” Almeyra said in an e-mailed response to questions.
“The market is preparing itself for what may be a change in
Argentina’s outlook.”
To contact the reporter on this story:
Katia Porzecanski in New York at
kporzecansk1@bloomberg.net
To contact the editors responsible for this story:
Brendan Walsh at
bwalsh8@bloomberg.net;
Michael Tsang at
mtsang1@bloomberg.net
Lester Pimentel, Bradley Keoun