Thursday, February 28th 2013 - 06:13 UTC

Argentina urges ‘workable’ solution from US appeals court to dispute with holdout bondholders

Argentina's defence urged a US appeals court on Wednesday to come up with a “workable” solution to its long-running fight with so-called holdout bondholders, and assured the country will not pay an amount exceeding the one set in the debt-swaps.

Defence lawyer Blackman said Argentina would not “voluntarily obey” an order to pay holdout bondholders in full.

Argentine Vice-president Boudou and Economy minister Hernan Lorenzino at New York

“We're trying to persuade the court to do something which is workable and doesn't create a terrible confrontation,” the lawyer, Jonathan Blackman, said during oral arguments before the 2nd US Circuit Court of Appeals in New York.

He also said that the country would not “voluntarily obey” an order to pay holdout bondholders in full.

The court is considering a lower court's order that Argentina must pay 1.3 billion dollars to a group of dissident bondholders stemming from the country's 2002 default.

“So the answer is you will not obey any order but the one you propose?” U.S. Circuit Judge Reena Raggi asked Blackman during more than two hours of arguments.

“We would not voluntarily obey such an order,” Blackman said. Hernan Lorenzino, Argentina’s minister of economy, and Vice President Amado Boudou sat at the counsel table as the lawyer addressed the panel.

Blackman claimed that a lower-court order obliging it to pay the defaulted bonds whenever it makes payments on restructured debt violates its sovereignty, threatens to trigger a new financial crisis and would quadruple the number of Argentine bond cases in New York federal court, rather than resolving them.

“If that’s the confrontation the court seeks with the injunctions, that are the court’s decision,” Blackman said. “We’re representing a government and governments will not be told to do things that fundamentally violate their principles,” he said.

Holders of defaulted bonds, led by Elliott Management Corp.’s NML Capital Ltd., run by billionaire hedge-fund manager Paul Singer, and Aurelius Capital Management, have won U.S. court judgments recognizing their right to be paid and are asking the appeals court to uphold the lower court to give them the ability to collect the 1.3 billion they say they’re owed.

Argentina says a ruling in the creditors’ favor would open it up to more than 43 billion in additional claims it can’t pay. The country defaulted on a record 95 billion in debt in 2001. Holders of about 91% of the bonds agreed to take new exchange bonds in 2005 and 2010, at a deep discount.

Theodore Olson, in defense of NML Capital and Aurelius Capital argued that Argentina was “never” willing to negotiate and recalled President Cristina Fernandez words “to the vulture funds, not one dollar”.

The appeals panel heard arguments from both sides, as well as from lawyers for the Exchange Bondholder’s Group, which represents holders of the restructured debt, and for Bank of New York Mellon Corp., the indenture trustee for the restructured bonds. The court may not rule for weeks or months.

Judges expressed doubt about arguments by BNY Mellon that it can’t be subject to US District Judge Thomas Griesa’s order barring third parties from helping Argentina pay the holders of restructured bonds without also paying the defaulted bondholders. Blocking BNY Mellon is key to the defaulted bondholders’ efforts to halt payments on the restructured bonds as a means of forcing payment to them.

“Argentina cannot violate this injunction without participation of the Bank of New York” Olson told the judges. Holders of the defaulted debt are seeking “what they are owed,” he said.

The holdout creditors are seeking to uphold rulings by Griesa that require Argentina to pay them the full amount they’re owed whenever it makes a required payment to the holders of the exchange bonds. The Exchange Bondholder Group claims the ruling improperly threatens their investment.

“We’re innocent parties,” attorney David Boies argued for the Exchange Bondholder Group. “I represent people who did what they thought was right. All I’m saying is what they did shouldn’t count against them.”

Griesa’s order shouldn’t apply to restructured debt holders, Boies told the panel. The court can’t hold them hostage, 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.”

The appeals court has already affirmed Griesa’s ruling that an equal-treatment, or pari passu, clause in the original bond agreements prevents Argentina from treating defaulted bondholders less favorably than exchange bondholders. The appellate court upheld an injunction issued by Griesa that barred Argentina from paying the exchange bondholders without also paying holders of defaulted debt.


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1 Idlehands (#) Feb 28th, 2013 - 06:43 am Report abuse
I think they should have kept their gobs shut. Telling a US court you'll only obey it if it finds in your favour is not the strategy to use to get what you want.

The trouble is it will probably end up in the Supreme Court and take years more to realise a result.
2 Gordo1 (#) Feb 28th, 2013 - 07:34 am Report abuse
That is how “justice” works in Argentina!
3 reality check (#) Feb 28th, 2013 - 07:43 am Report abuse
“We’re innocent parties,” attorney David Boies argued for the Exchange Bondholder Group. “I represent people who did what they thought was right. All I’m saying is what they did shouldn’t count against them.”

Always the victim.”
4 brit abroad (#) Feb 28th, 2013 - 08:32 am Report abuse
RG's are thieving monkeys
5 Anglotino (#) Feb 28th, 2013 - 08:50 am Report abuse
How embarrassing for a government to be almost begging a foreign court to side with it.
6 Monkeymagic (#) Feb 28th, 2013 - 09:05 am Report abuse
We’re representing a government and governments will not be told to do things that fundamentally violate their principles

That is fucking funny....what principles??
7 Gordo1 (#) Feb 28th, 2013 - 09:48 am Report abuse
Argentina - always the bridesmaid never the bride!
8 Furry-Fat-Feck (#) Feb 28th, 2013 - 10:01 am Report abuse
“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.”

.........and just who's 'default' is that then?

'Argentina says a ruling in the creditors’ favor would open it up to more than 43 billion in additional claims it can’t pay. The country defaulted on a record 95 billion in debt in 2001. Holders of about 91% of the bonds agreed to take new exchange bonds in 2005 and 2010, at a deep discount.'

Again. Who's fault is that? What's more, Argentina is supposedely booming and is positively rolling around in ready cash. Why not just pay your debts? Then you can move on, slate clen, heads held high.
9 Monkeymagic (#) Feb 28th, 2013 - 10:26 am Report abuse

But paying their debts “violates their sovereignty”
Not having the Falklands “violates their sovereignty”

They get violated quite a lot LOL.
10 ChrisR (#) Feb 28th, 2013 - 10:52 am Report abuse
It is laughable to imagine that whatever the judge decides, other than what Argentina have TOLD her to decide will even be considered by TMBOA.

But that will not alter one bit what the judge will decide and we will then see if the argies default.

I and many others think that AR is broke and has no money to pay in any event. This legal parade is just a way of holding on to whatever course of loans or credit they can wangle out of the rest of the world.

When it is clear to TMBOA that no more money is forthcoming from any other source, then they will default on everything.
11 Captain Poppy (#) Feb 28th, 2013 - 11:28 am Report abuse
#1 they can only TRY to take it to the SCOTUS. The suspreme court has to decide to take the case to be heard and the general consensus is that the court would not except their case. All this year;s cases have been submitted and will be announced in the spring. They would need to file by this years end if they lose.
12 yankeeboy (#) Feb 28th, 2013 - 11:55 am Report abuse
They're trying to play the Sovereignty card so it gets taken up by SCOTUS. The sticky part of that argument is when they originally sold the bonds they agreed to NY State/USA law.
This will not end well for Argentina, I'm sure CFK thinks she can tie this up in the courts until she is gone and the next gov't will have to clean it up and she may be right.
13 andy65 (#) Feb 28th, 2013 - 12:48 pm Report abuse
Would not wish this on my worst enemy but would love to see Crissy slapped down once and for all PAY UP BITCH.
14 Anbar (#) Feb 28th, 2013 - 12:49 pm Report abuse
keep telling you all not to get your hopes up - this is politicised now and expect a hell of a lot of back-room bartering going on with the US supporting Argentinas position “for the sake of the global economy” (and their own, at times very odd, desires for influence in South America)

A deal will be struck and Argentina will get off the hook.
15 AzaUK (#) Feb 28th, 2013 - 12:53 pm Report abuse
Argentina is finished!
16 yankeeboy (#) Feb 28th, 2013 - 12:58 pm Report abuse
Anbar, that would be a very bad precedent to set and will never happen. Argentina has LOST every case in the last decade. It won't be winning this one either.
The USA gov't is not supporting Argentina in any way. The Fed/Treasury thought the solution that Griesa came up with involving the banks was unworkable but they'll come up with a one that works and Arg will have to abide by it or say goodbye to the world's financial system.
17 mastershakejb (#) Feb 28th, 2013 - 01:12 pm Report abuse
The hilarity abounds!
18 owl61 (#) Feb 28th, 2013 - 01:28 pm Report abuse
Thinking out loud. There are 2 possible outcomes.
1) The Sut Ct will rule that US courts can not enforce the collection of debts against a foreign sovereign nation as a matter of historical judicial policy, however the case is one which seeks to enjoin a US bank trustee to do act which would constitue a violation of the bond contract based upon the pari passu clause contained in the contract. To the extent the existing bond contract would prohibit the trustee from paying it is valid as against the trustee. So, all you foreign sovereign nations make sure your bond contracts eliminate or alter the pari passu language if you want to avoid this result using US trustees on US soil.
2) In this law suit the plaintiffs have asserted the right to be paid in a suit seeking an injunction based upon contract principles. If I remember correctly, the reason the plaintiffs prevailed is that the lower court ruled that the “pari passu” clause in the original bond contract was deemed violated when ARG sought to pay more to those borrowers who had agreed to accept susbstituted bonds than to the holdout plaintiff bondholders.
The plaintiff funds never reduced the bond contract obligation to a judgment for money because if they did, the judgment would, by law, supercede and extinguish the contract. If so, the pari passu clause would be vitiated. By law the plaintiffs would have no contractual basis for their claims and would lose.
There is a principle in the law that one can not do indirectly what one can not do directly. In my opinion the Sup Ct will ultimately rule that the plaintiffs could not have prevailed if they had a judgment and will not be allowed to be paid the original contract balance owed since they could have never collected a judgment against ARG in foreign courts.

My money is on #2.
19 Condorito (#) Feb 28th, 2013 - 01:32 pm Report abuse
@ Anbar, I agree with you. The holdouts will get nothing. At best they will get the same haircut the re-structureds got as a compromise solution.

It is in no ones interest that the holdouts win. Everyone knows how national defaults can ripple through the global economy. Everyone knows the poor suffer the most.

Besides the pragmatics of it, Argentina is in the right (if there is such a thing in these cases): they defaulted, they re-structured, creditors took a hit. Essentially the same as every other sovereign default case in modern times.

They have met their obligations to the vast majority who accepted the re-structuring. The recovery rate is higher than that of the Greek default.
20 mastershakejb (#) Feb 28th, 2013 - 01:58 pm Report abuse
The hilarity ensues!
21 ElaineB (#) Feb 28th, 2013 - 02:04 pm Report abuse
It is interesting that Clarin had a reporter at the hearing and suggested that the lawyers representing Argentina did not perform well. The overwhelming opinion was that Argentina would lose, on the basis of the hearing, particularly the anger of the judges as Argentina declared it would not abide by any judgement not in their favour. (Or words to that effect).

However, there is a bigger picture here and whatever the judgement, CFK is losing control.
22 redpoll (#) Feb 28th, 2013 - 02:16 pm Report abuse
Not a very good idea to tell the judge in advance that unless the verdict is in RGs favour they will not abide by the judgement. They did this with Griesa as well. They have not abided by ICJ judgements for ages and think they can treat the US courts with the same contempt. The ICJ has no teeth to enforce thier judgemnts so Argentina can flout thier verdicts with impunity.
I think they will find out to thier cost that US Courts are a very different kettle of fish
23 Conqueror (#) Feb 28th, 2013 - 02:33 pm Report abuse
@1 How delicately put. But I think “So the answer is you will not obey any order but the one you propose?” U.S. Circuit Judge Reena Raggi asked Blackman during more than two hours of arguments.“ is telling. I suggest that indicates how the appeal court is thinking. It will undoubtedly take into account the many, many judgements against criminal, thieving argieland. And so it should. Opening the way for responsible governments to send their armed forces to take control of the territory of the gangsters, recover all outstanding debts, pay the victims and then assess proper reparations for argieland to pay for all its criminal activities in the last 200 years.
@19 Sorry. When a sovereign ”state“ defaults, it should negotiate. Try to give those from whom it borrowed an equitable result. Argieland didn't do that. It issued an ultimatum. ”Take this or get nothing“. That's robbery. I doubt argieland ever intended to repay its debts. That's premeditation. Argieland must be made to pay. It deliberately stole the money of ordinary people in other countries. Is that an ”act of war“? Argieland is a gangster ”state“. Split it up. Make the bits subject to UN control. Take the current argie ”government” on trial for larceny, war crimes, corruption. When the trial ends, execute them. Perhaps, given their origins, public ritual garroting or strangling might be appropriate? Members of La Campora and Quebracho should simply be publicly genitally excised and beheaded.
24 Condorito (#) Feb 28th, 2013 - 03:06 pm Report abuse
@23 Conq
Lending money is a risky business. If you lend / invest in a risky country like Argentina you only have yourself to blame. Would you put your pension in a country that is know for political corruption and economic mismanagement?

You say:
“When a sovereign ”state“ defaults, it should negotiate”

No, it should do what is in it's citizens best interests. The 30% recovery is not atypical for foreign defaults.
25 yankeeboy (#) Feb 28th, 2013 - 03:11 pm Report abuse
24. You are making a serious judgement error by leaving out the fact that Argentina is bound by NY State/USA laws and regulation on these bonds.
Argentina issued the bonds with contract language that the investors know were covered under USA laws and took that into account when they made the investment
If Argentina wanted to sell the bonds under their own laws they could have but they would have had to pay a much higher rate.
They knew exactly what they were doing and are not trying to get out of it.
It won't happen.
26 Captain Poppy (#) Feb 28th, 2013 - 03:28 pm Report abuse
#20 that is funny....what is good fopr Chevron/Texaco is equally good for YPF.
Elaine I read it did not bode well either. But I am think they will order Argentina to pay the MNL the same manner in which the restructured bond holders were paid. I do not see Argentina getting off with a get out of jail pass, but I don't see MNL getting all they want as well. There are usually no winners in lawsuits other than lawyers, anyone ever involved in suits know that.
27 Condorito (#) Feb 28th, 2013 - 03:49 pm Report abuse
@25 Yankee
I am sure that US law allows debtors to default.
28 yankeeboy (#) Feb 28th, 2013 - 04:22 pm Report abuse
27. Of course but not the borrowers are not allowed to set their own terms!

This ”negotiation was a unilateral take it or leave it deal from Nestor. It is also why you can't compare it to any other sovereign default. The closest is Peru and guess what, the bondholders won that suit and Peru ended up paying.

The law is on the bondholder's side and Argentina will continue to lose and I think they have reached their last venue.
29 Condorito (#) Feb 28th, 2013 - 04:42 pm Report abuse
With the full backing of the law on their side, the 91% who accepted the RG terms were foolish then.
30 yankeeboy (#) Feb 28th, 2013 - 04:50 pm Report abuse
29. Most of the 91% were made up of Arg Gov't controlled entities or regulated by the Arg gov't, banks, insurance companies etc. They had no choice. I think the amount was upwards of 65%. At the time the gov't panicked and had to open up a 2nd time after a little more pressure on some Rg companies they made the higher %.
31 Ayayay (#) Feb 28th, 2013 - 04:57 pm Report abuse
A Humble Attitude is Sometimes Important
32 Condorito (#) Feb 28th, 2013 - 05:02 pm Report abuse
Ah, that is a good point.

Well, we will just have to wait and see how this next installment of the RG soap opera plays out.

My money is still on a holdout fail.
33 ElaineB (#) Feb 28th, 2013 - 05:32 pm Report abuse
@31 Interesting article. It does look like the probable outcome. In the end everyone loses something, but the biggest loser will be the reputation of Argentina. Seriously, how are they ever going to build trust again?
34 Captain Poppy (#) Feb 28th, 2013 - 05:46 pm Report abuse
Why do you think the holdouts will fail, I am only curious. If I were a betting man, I would say that the courts will tell Argentina that they must pay the holdouts based on the same restructuring they paid the 91% . But then I am not a betting man.

Not a good morning for Argentine bonds....they jump 371 BPS.

It cracks me up with Argentina claiming sovereignty and that a USA court cannot force them to pay and they are correct, they can't. We cannot put them in jail if they do not pay and they have every sovereign right to choose not to pay a court order.......just never allow an Argentine asset to leave Tango 1, you may get it back.....after two months....and you may not get it back the next time.
35 ElaineB (#) Feb 28th, 2013 - 05:53 pm Report abuse
@34 Are you asking me?

I think that even if the court orders Argentina to pay the hold-outs the Argentine government has already decided it will default. It was pretty much stated in court.

There is no way CFK is going to hand over a single dollar when she could steal it for herself.
36 Ayayay (#) Feb 28th, 2013 - 05:56 pm Report abuse
They'll have to remove their money from New York, which seems like MOST of the Arg gov's money. Why can't they save and spend in pesos?

Also, it is not the courts place to determine whether or not Arg's mismanagement will affect Arg's economy.
If new laws need to be put in place to avoid pari pass clauses, that's the responsibility of the legislative branch , not the judicial.
37 yankeeboy (#) Feb 28th, 2013 - 06:11 pm Report abuse
34. I don't believe the courts have authority to issue an order to compel NML to accept less than they're owed. This is not a bankruptcy court. Either the contract will be upheld or not. They are owed or not.
It is really very simple.
At this point Argentina doesn't have funds to pay anything to anyone. I doubt very much they have enough U$ to keep the heat on this winter.
It would be a conveniently timed default to get them through winter until they can pay interest again.
What an absolute mess of a country.
38 Captain Poppy (#) Feb 28th, 2013 - 06:20 pm Report abuse
Elaine I agree that the decision has been made and will not be turned around. But I was actually asking Condorito why he thinks MNL will fail.
Intersting article indeed.
Yankee I was not suggesting the the courts compel MNL to take a haircut, but I do think that paying the holdouts in the same manner as would constitute equal treatment of all bondholders. Why did they just not pay them a restructured amount to begin with? Thankfully I am not a lawyer and do not profess to know the law.
39 Condorito (#) Feb 28th, 2013 - 07:15 pm Report abuse
38 Poppy
The holdouts were offered the restructured amount to begin with, but they opted to “holdout” in the hope that they could force Argentina to pay more.

The reason I think the holdouts will fail is because the implication of them winning is a bad result for everyone (except the holdouts).

The Rgs know that no one wants them to default and that is there trump card. Their lawyer's defiant statement could be read as a shot across the bows of the judge, i.e. you rule against us, we default, bad for all of us.

Theoretically none of those considerations should affect the judge's decision, but with much more at stake, than the interests of opportunist NML, higher powers will be pulling strings.

I think he is immersed in the Festival de Viña.
40 reality check (#) Feb 28th, 2013 - 07:26 pm Report abuse
The judge did respond to that, she said market forces were irrelevent to the courts rulings. Pretty well recognised it for what it was.

Check out ayayays link at 31. Think that is where I read it.
41 Condorito (#) Feb 28th, 2013 - 08:00 pm Report abuse
@40 RC
good article (thanks Ayayay).

Sounds like the judge means business - let's see if she goes through with it.
42 jakesnake (#) Feb 28th, 2013 - 08:17 pm Report abuse
@35 “There is no way CFK is going to hand over a single dollar when she could steal it for herself.”

This is probably one of the most dead-on correct statements regarding CFK anybody could make.
43 ptolemy (#) Feb 28th, 2013 - 08:59 pm Report abuse
I'm not sure why Argentina bothered to go to court if they had no intention of obeying a court order. Smacks of premeditation. Someone on these forums a few months ago suggested that Argentina planned all along not to pay so they could keep all of the money, (restuctured debt too.) They could also claim to be the victim of capitalism, etc.,etc. Good political hay for CFK and get paid too. Mo money, mo money!
44 briton (#) Feb 28th, 2013 - 09:06 pm Report abuse
Just like the Falklands , argentina will do anything , try anything , cry every day, and corrupt everything that moves, in any attempt to pay,

She want the lot for nothing ,
The point is,
Will she get her way,
Or will she be made to pay,

45 Captain Poppy (#) Feb 28th, 2013 - 09:15 pm Report abuse
#43 it was a win win situation for them if you think about it. in one ruling, if they lose they have no intention of paying whatsoever. And in a win...they really win with a judgement against MNL. So either they their eyes.
46 Anbar (#) Feb 28th, 2013 - 09:17 pm Report abuse
“”“”“Anbar, that would be a very bad precedent to set and will never happen.”“”“”“

couldnt agree more on the first part... but you watch closely how this resolves itself... bet you that your government sticks it oar in at some level and ”persuades“ the judicial system to give Argentina an ”out“.

As a Brit I simply do not trust the USA not to frak-up.

Tbph, I do not trust the USA ”fullstop”.
47 Acchiappaladri (#) Feb 28th, 2013 - 09:21 pm Report abuse
sorry, but I fear you lost your money.

The 2nd C. CofA decided on Oct 26,2012 against you bet.

”Plaintiffs appeal from permanent injunctions entered by the United States District Court for the Southern District of New York (Griesa, J.) designed to remedy Argentina’s breach of its promise to pay bondholders after a 2001 default on its sovereign debt. We hold that Argentina breached its promise and, accordingly, affirm the underlying judgments of the district court.
Further, we find no abuse of discretion in the injunctive relief fashioned by the district court.
However, given the need for clarity as to how the injunctions are to function, the case is remanded to the district court for such proceedings as are necessary to address this matter.
AFFIRMED in part and REMANDED in part.
etc. “
The court explained the meaning of ”pari passu” clause, confirming that plaintiffs shall be paid when Argentina pays holders of other classes of RG bonds.
At me moment IMHO the only big question to be answered by the court is if and how the BNY Mellon is subject to the District Court's order barring third parties from helping Argentina pay the holders of restructured bonds without also paying the defaulted bondholders.
48 yankeeboy (#) Feb 28th, 2013 - 09:54 pm Report abuse
The last time the credit insurance got this high they defaulted. I expect, and so does most of Wall Street, that another default is immanent.

Gads what a mess, absolutely no progress in the last decade and another default on the horizon. The only difference this time is there is no more U$ to steal, everything and I mean everything is G.O.N.E, infrastructure is crumbling, there is no saving and the peso is 1/8 of where it was 10 years ago. They can't tame inflation, unemployment is rising.
Most countries have one or two of these issues at a time to deal with not 100!
I don't see how they turn this around in a generation

Goes back to my never answered question, are RGs stupid or lazy or both?
49 CaptainSilver (#) Feb 28th, 2013 - 10:52 pm Report abuse
Lazy stupid or both? Both, all they are interested in is football and tango. They are currently tangoing into yet another disaster. They will ALL be as poor as the cartoneros soon.
50 Ayayay (#) Mar 01st, 2013 - 07:12 am Report abuse
Thanks, all
51 Captain Poppy (#) Mar 01st, 2013 - 06:40 pm Report abuse
The battle is over....Kirchner must submit a payment plan by MArch 29. They either capitulate or default on the 29th.
52 olibeira (#) Mar 05th, 2013 - 06:55 pm Report abuse
You're right. The battle is over. The holdouts are not getting anyting. And there will be no default. You can't default on something that has already been defaulted.
53 Condorito (#) Mar 05th, 2013 - 09:30 pm Report abuse
“You can't default on something that has already been defaulted.”
Actually you can.

Argentina could default on the 2005 and 2010 restructured debt that it is currently honoring. That is effectively the threat that the RGs are making.
54 Captain Poppy (#) Mar 05th, 2013 - 09:59 pm Report abuse
Based on the same terms of its previous debt swaps, Argentina would probably offer to pay about $778 million, or about 55 percent of the holdouts’ claim, Citigroup Inc. said in a report dated March 1.

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