Sunday
July 26, 2015

Sunday, July 26, 2015

‘Vultures’ spat turns into legal labyrinth

By Fermín Koop
Herald Staff

No quick solution seen to conflict as presidential candidates shy away from issue

With only two weeks to go before the presidential primaries, the legal conflicts between the government and the “vulture” funds are starting to pile up, as the open fronts against holdout bondholders continue to increase at a time when none of the main presidential contenders have put forward a plan on how to deal with the growing legal battle in US courts.

PRO presidential hopeful Mauricio Macri’s recent change of stance on several issues included tougher words against the holdouts, closer to those espoused by Victory Front (FpV) contender Daniel Scioli, implying any kind of resolution would not be imminent after a new president is sworn in.

The “vulture” funds, meanwhile, do not appear to be letting up on their campaign as spending on lobbying has remained largely steady this year.

In the first six months of the year, American Task Force Argentina (ATFA), the visible lobbying arm of the holdouts, has spent US$650 million, almost half of the amount they spent in 2014.

“This is the calm before the storm. The balance is tipping toward the holdouts (in US courts) and expectations are high about the elections,” Jorge Ignacio Frechero, a debt expert and researcher at the CEIPIL think tank, told the Herald. “Funds are trying to move forward with the acceleration of payments and are asking (US District Judge Thomas) Griesa to sanction Argentina over the discovery, while he still has to decide on the contempt of court sanctions.”

Argentina refused last year to heed Griesa’s orders to pay the holdout hedge funds, led by NML and Aurelius, at the same time as it pays bondholders who participated in the debt exchanges following the country’s historic 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.

The move led US credit rating agencies to declare Argentina was in partial default.

The judge subsequently blocked Bank of New York Mellon Corp (BoNY) from processing a US$539 million payment that Argentina destined for its restructured creditors, resulting in a legal limbo. The country then passed legislation that allowed it to remove the BoNY as its trustee and establish local payment mechanisms for its restructured creditors for Par bond payments, leading Griesa to rule that the country was in contempt of court.

Since then, legal conflicts have only grown. There is now Griesa’s pending contempt of court sanctions, NML and Aurelius’ request for sanctions due to what they describe as Argentina’s refusal to hand over documents (discovery), the risk of an acceleration of payments, the order to pay US$5.4 billion to the “me-too” bondholders and the “vultures” attempt to block the country from servicing US$1.4 billion in Bonar 2024 bonds — all of which are seemingly far from a solution.

“We’re facing a complex scenario. The government is sticking to its stance in the case, which probably won’t change at least after the elections. There won’t be any talks or settlements for now,” Stella Maris Biocca, UBA lawyer specialized in international law, told the Herald. “Argentina is being blackmailed internationally to make a deal with the ‘vultures’ and pay all its debt now without even negotiating.”

The presidential election increased expectations in the market for a deal, especially on the thought of a Macri victory. Those expectations were practically erased last week though when Lower House PRO caucus leader Federico Pinedo said last week Macri “would do the same as Economy Minister Axel Kicillof and negotiate with a tough stance with the holdouts,” a marked change in stance for the City mayor who had said earlier that ‘vultures’ should be paid everything Griesa said they were owed.

Scioli, meanwhile, questioned Macri’s change of stance and reaffirmed the idea of keeping the same position taken by President Cristina Fernández de Kirchner’s administration. Nevertheless, some of his key advisers such as Buenos Aires province Economy Minister Silvina Batakis said there must be a resolution on the issue, a stance shared by a source close to the governor in conversations with the Herald.

Recent claims

NML and Aurelius filed a request brefore United States Judge Thomas Griesa last week calling for the Bonar 2024 bonds issued under Argentine law to be classified as foreign debt, which under the terms of the previous ruling made by Griesa would permit an embargo of the funds. The request was filed after Griesa issued a ruling authorizing the bondholders to update their demands against Argentina.

The Bonar bonds were issued by the government in April for a total US$1.4 billion, denominated in US dollars but governed by local law. Aurelius and other holdouts contend the government is issuing this kind of debt to get around Griesa’s order, which entitles the holdouts to be paid in full for the defaulted bonds they hold. Even if the bonds are local, they were marketed by Deutsche Bank, according to the “vultures.”

At the same time, NML and Aurelius have recently asked Griesa to sanction Argentina for ignoring a court order to produce documents and respond to questioning.

The holdouts were granted discovery requests on accounts inside the US in Argentina’s name, commercial letters of credit in which Argentina is listed either as the applicant or the beneficiary, loans for which the country is listed as the borrower or guarantor and assets owned by Argentina or by ANSeS social security agency in the US.

Argentina has refused to comply with NML’s request as it considers the country’s assets are immune from execution under the Foreign Sovereign Immunities Act of the United States.

Sanctions from Griesa are also pending over the contempt of court order he issued against Argentina. The country had appealed the ruling at the US Circuit Court of Appeals but this was considered premature since Griesa hasn’t issued the sanctions yet. After he does, the order will be final and Argentina will have a second chance to appeal.

Griesa’s contempt of court order came as a consequence of the government’s law to remove the Bank of New York (BoNY) as the agent whereby bondholders receive payments, clearing the way for those creditors as well as holdouts to be paid in Buenos Aires.

Acceleration risks

Meanwhile, acceleration remains a concern.

A creditor group led by Owl Creek Asset Management is on the cusp of controlling enough defaulted Argentine bonds to demand immediate repayment, according to press reports over the last few weeks. The US$4.1 billion hedge fund is trying to find other holders of the US$5.4 billion in Par bonds that want to joint the group.

An acceleration could leave Argentina facing claims of up to US$30 billion. Nevertheless, it’s not a simple procedure. An acceleration only occurs if investors holding at least 25 percent of the nominal amount of any single restructured bond series demand immediate payment.

The risks of an acceleration come amid demands from the so-called “me-too” bondholders — holders of defaulted bonds who have refused to restructure — whose demands worth US$5.4 billion were acknowledged by Griesa last month, pushing the bill for holdout funds to US$7 billion following Griesa’s previous order to pay NML and Aurelius Management US$1.6 billion, including interest.

The judge ordered the country pay more than 500 so-called “me-too” holders of defaulted debt at the same time as restructured creditors. But the final bill could be even larger if he continues accepting claims from other “me-too” bondholders. The country currently has US$24 billion worth of debt still in default and, considering the US$7 billion in claims already accepted, there are still US$17 that could be claimed.

“Griesa may end up including more me-toos in his rulings. It’s not easy to figure out how to deal with them,” Eugenio Bruno, an attorney specialized in sovereign debt issues and a partner of Garrido firm, told the Herald.

Lobbying action

Since 2007, when its lobbying actions began, ATFA has spent US$6.74 billion on trying to push its case with the US government.

ATFA hired lobbying firms such as Covington and Burling, Raben Group and DCI Group to lobby in favour of the “vulture funds” in the White House, the Department of Justice, the Department of State, the Senate and the House of Representatives. The lobbying included issues of foreign relations, trade, agriculture and finance,

In the US, all lobbyists must register their activities and who they work for, and these documents are collected on a monthly basis by the non-profit group Centre for Responsive Politics.

@ferminkoop

Size
email
Print
Share

Vote

Tweets por @BAHeraldcom

Get to File

Director: Orlando Mario Vignatti - Edition No. 4560 - This publication is a property of NEFIR S.A. -RNPI Nº 5236549 - Issn 1852 - 9224 - Te. 4349-1500 - San Juan 141 , (C1063ACY) CABA