Friday, July 25th 2014 - 05:22 UTC

“The muddled case of Argentine bonds”, as seen by New York Times

The following piece was written by Floyd Norris, financial analyst from The New York Times and refers to the complicated process that has emerged from the ongoing battle between Argentina and the holdouts demanding full payment of sovereign bonds, plus accrued interests.

“Only now is Judge Griesa learning how complicated life can be for a judge seeking to control actions by a sovereign government”

For Anna Gelpern, a law professor at Georgetown University, what is happening days before a payment default is “scary”

Thomas Poole Griesa has been a federal judge for 42 years. He has been grappling with Argentina’s debt default for a decade.

Only now is he learning how complicated life can be for a judge seeking to control actions by a sovereign government and issuing orders that are supposed to be binding on those who would ordinarily never be within the jurisdiction of an American court.

“We are in the soup,” he said at one point on Tuesday during the latest hearing in a case that has shaken the world of sovereign debt restructuring.

He was referring to the prospect of a new Argentine default on its sovereign bonds, something that seems almost certain to happen on Wednesday. But he could have been referring to the process he unleashed with rulings that were meant to accomplish one thing — force Argentina to live up to what he repeatedly called its “obligations” — but failed to take into account just how complex the situation is. This week’s hearing made clear that he had not completely understood the bond transactions that he had been ruling on for years.

Argentina defaulted on its debt in 2001 and took an imperial attitude toward aggrieved creditors. In 2005, it offered a take-it-or-leave-it exchange of new bonds for the old ones, with investors required to accept large losses. Then in 2010 it told investors who had held out that they would have one more chance to take the exchange bonds. Most did, but some, largely hedge funds, did not and demanded full repayment. Argentina vowed that those investors who refused would never receive a dime.

Then came Judge Griesa, who was chief judge of the United States District Court for the Southern District of New York until 2000, when he became a senior judge.

Other judges had ruled that Argentina owed the money, but those rulings were, in practice, unenforceable against a sovereign state. Judge Griesa came up with a legal interpretation to put teeth in the rulings. He held that Argentina must pay the old bonds in full at the same time it made the next semiannual interest payment to holders of the new bonds. And if it did not do so, any bank that helped Argentina pay interest on the new bonds would be violating the order.

That ruling was upheld by the United States Court of Appeals for the Second Circuit, and in June the Supreme Court refused to hear Argentina’s final appeal.

In Argentina’s debt restructuring, holders of the old bonds who accepted the country’s offer received a variety of new bonds depending to some extent on which old bonds they held and to some extent on which new bonds they chose. Some of the exchange bonds were denominated in United States dollars, some in Argentine pesos, some in Euros and some in Japanese yen. Some of them were subject to New York law, others to Argentine, English or Japanese law.

And that is where the complexities arose that Judge Griesa seems not to have understood.

The order he issued earlier this year said that — assuming Argentina does not make good on the old bonds — it should not make interest payments on the exchange bonds, and banks should not help it do so. That sounded as if it covered all the exchange bonds, even those not issued under New York law.

But the opinion explaining the order discussed only the dollar bonds issued under New York law. It ignored the existence of other exchange bonds.

So did the ruling apply to those other exchange bonds, including those issued under Argentine law? Would a bank that processed interest payments on those bonds be in trouble with the judge?

Citibank’s Argentine branch, which is the trustee for bonds issued under Argentine law, some denominated in pesos and some in dollars, asked the judge for a clarification, and on June 27 he provided one. Citibank could process interest payments on those bonds. They were not covered by his order.

This week’s hearing was largely about changing that ruling, and the judge initially made it clear that he saw no reason for a change. He saw the bonds as domestic ones, owned by Argentine citizens. “From a practical, common-sense standpoint,” he asked a lawyer for the hedge funds who was trying to have the order modified, “why do they have to get dragged into this?”

It turned out that he did not know much about those Argentine-law bonds. He said his June order provided “a rather minute exception” to his original ruling, and told the hedge funds’ lawyer, Edward A. Friedman of Friedman Kaplan Seiler & Adelman, “It is my understanding that the bonds being talked about in your motion are not part of the exchange.”

Told that the bonds in question were exchange bonds, and that they accounted for nearly a quarter of all the exchange bonds, he said he had not realized that and reversed course.

“Sitting here right now,” he said, “it strikes me that, being exchange bonds, they should be treated as exchange bonds and that they should be included with the other exchange bonds in the Feb. 23 order.”

It was not bad theater, but it hardly inspired confidence in the American legal system.

“These questions are essential to the operation of this injunction,” Anna Gelpern, a law professor at Georgetown University who has followed the case for years, said after reading the transcript of Tuesday’s hearing. “Up to half the debt could be in or out depending on how these questions are resolved. The fact we are confronting them, days before a payment default, is scary.”

It is not as if no one had pointed out the issues in the many legal briefs and arguments filed in this case, both before Judge Griesa and before appeals courts. But those arguments seem not to have registered. “For this to come out after this has gone through so much legal process, in the most sophisticated financial jurisdiction in America,” Ms. Gelpern said, “has to be astounding.”

On Tuesday, Judge Griesa eventually decided he would think it over and rule at a later date. At some point he will also have to deal with the status of bonds issued under English or Japanese law.

If he ends up ruling that the Argentine-law bonds are covered by his original ruling, and tells Citibank not to process the interest payment, then Citibank could have to decide whether to defy him or ignore the law in Argentina, where it could face prosecution.

If he rules the other way, Argentina may try to find a way to do a new exchange, with Argentine-law bonds given to any investors who want to give up their bonds issued under United States law. The judge would probably try to block such an exchange.

A grace period gives Argentina until Wednesday to pay the interest it owes on the exchange bonds. It has paid the money to the bank trustees, including Bank of New York Mellon for the New York-law bonds. That bank has done nothing with the money because it is clearly bound by the judge’s order.

Argentina says that payment means it will not default, because it will not be the country’s fault if the exchange bond holders are not paid. The judge says Argentina acted illegally in making the payment, but he has not decided what the Bank of New York Mellon should do now. The hedge funds want the judge to order the bank to return the money to Argentina. The bank, fearing suits from bondholders, wants to keep the money until all this is sorted out. The judge is also pondering that issue.

As Wednesday approaches, the judge has a lot to think about. It would be better if he had done some of that thinking before he issued his order, or if the appeals court or the Supreme Court had forced him to do so.
 

27 comments Feed

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1 The Voice (#) Jul 25th, 2014 - 06:51 am Report abuse
A brief synopsis of the article is....
..apparently this judge hasn't got a clue what he is doing and hasn't for the last 12 years...
to make an informed judgement...one really should be informed...
...scary
2 Troy Tempest (#) Jul 25th, 2014 - 08:20 am Report abuse
He appears to have interpreted the Law and it's intent correctly, and is applying it appropriately.
However, the difficulty is the possible conflicts of jurisdiction - quite a challenge to make it can be enforced in good conscience.
Not an easy case.

This article reeks of ageism - certainly in 42 years, this Judge has acquired a great deal of experience and seen many precedents.
3 Conqueror (#) Jul 25th, 2014 - 09:48 am Report abuse
Don't lawyers like to make simple things complex? Which jurisdiction were the bonds issued under? Where has argieland illegally deposited the money? Who was jurisdiction. Case closed. Pay up, argieland!
4 hurricane (#) Jul 25th, 2014 - 10:57 am Report abuse
The NYT is the perfect forum for Arg. They always blame everything on the Capitalist or Bush. Liberals and Argentines are synonymous. The NYT is becoming more like CNN every day. The network that no one watches.
5 british bomber (#) Jul 25th, 2014 - 11:20 am Report abuse
This judge is an idiot. An English judge is going to set him straight real soon. The English bonds have nothing to do with America.
6 downunder (#) Jul 25th, 2014 - 11:33 am Report abuse
“................................Argentina vowed that those investors who refused would never receive a dime.”.

That paragraph says everything, the legal argie bargie notwithstanding, Argentina treated its creditors with contempt, forcing them to suffer huge lossess on their investments and refusing outright to pay those who held out and wanted full payment. Who do these awfull people think they are?

I bet they don't treat the Chinese in such a high handed fashion the next time they default on their loans.
7 ChrisR (#) Jul 25th, 2014 - 11:54 am Report abuse
This is a very poor article indeed and it is easy to see why the writer is working in academia instead of alongside the likes of Griesa in the real world. I bet she has never had to deal with the real world since leaving Law School.

Also she appears to have missed the point that it was The Dark Country who placed their bonds into the hands of the US court (because, being a scofflaw, they could not sell them otherwise) and it is contract law pure and simple.

Hindsight is a marvellous thing and this writer is all about hindsight. Pathetic.
8 yankeeboy (#) Jul 25th, 2014 - 12:22 pm Report abuse
Griesa was forced to take extreme measures and include the paying agents because Arg said they wouldn't honor the ruling if it went against them.
They clearly didn't honor the ruling by sending the last payment.
When you are dealing with dishonorable people you must craft the deal ( or ruling) accordingly.
This is why Argentina will always get poorer and dumber year after year.
Int'l companies (and Arg companies) must make as much as possible as quickly as possible and get it out of the country as soon as possible. The Pols are nutty, corrupt and full of avarice. That's why they are in a 10 year cycle of boom and bust that they will never escape from.

If they get into hyperinflation I don't see one Intl mfg staying in the country. Not one.
Then what?
9 Anbar (#) Jul 25th, 2014 - 12:28 pm Report abuse
“Its the end of the world as we know it...”

I agree with The Voice....

/me faints
10 Mr Ed (#) Jul 25th, 2014 - 12:48 pm Report abuse
The article seems to be saying that the learned Judge is not smart enough to understand that debtors should not pay their debts if they are sovereign governments.

So what if third parties are caught up in the proceedings? They presumably could have filed briefs as interested parties. It is not the judge who has a lot to think about, it is the Argentinian government.
11 yankeeboy (#) Jul 25th, 2014 - 12:49 pm Report abuse
Voice, The ruling was reviewed all the way up to SCOTUS who declined to change it.
Obviously the best legal minds in the most respected court system in the world has studied this ruling and found it to be in compliance with the laws of NY state.
Griesa knows what he is doing much more that the lithium soaked Prez of Argentina and her equally retarded minions.
12 The Voice (#) Jul 25th, 2014 - 01:10 pm Report abuse
11
Don't shoot the messenger....
I only commented on the article...
...which, of the face of it, appeared to be the gist of it.

“It is not as if no one had pointed out the issues in the many legal briefs and arguments filed in this case, both before Judge Griesa and before appeals courts. But those arguments seem not to have registered.”

...that would be, “the best legal minds in the most respected court system in the world”...that you are referring to...
13 yankeeboy (#) Jul 25th, 2014 - 01:15 pm Report abuse
12. But she has the gall to say it “registered” with her? She's a nobody.
My guess this was a paid article.
NYT is not the paper it used to be by any stretch of the imagination.
I wouldn't be surprised if it went out of business in the very near future.

The ruling was reviewed up to SCOTUS. So yeah the best legal minds in the most respected court system in the world.
I stand by that.
14 Alistair Nigel (EUian) (#) Jul 25th, 2014 - 01:59 pm Report abuse
So the VULTURE FUND try convince make American judge to force the law of dozens of other countries to become vassal of NEw York law?

Thank you this prove the megalomania of USA person, and the wicked of vulture fund, who realize Griesa only could say enforce on New York issue bond, and want now US law apply to entire world.

I thought vulture fund 'respect' other country. Proof they not.

Vulture fund and USA not care not respect anyone. worsest people on world. China own their money now, only way to keep these immoral on check.
15 reality check (#) Jul 25th, 2014 - 02:19 pm Report abuse
The vultures are circling and they are going to pick Argentinas bones clean!

Chuckle, chuckle, chuckle!
16 Alistair Nigel (EUian) (#) Jul 25th, 2014 - 02:37 pm Report abuse
HEre at 15 the typical dishonorable English person. Accusing argentina of try change court order after sentence. Argentina bad, evil.

Now here catch red-handed vulture fund try change court order after sentence, Englsh person reality check say nothing avoid issue like coward.

Yesterday England insult France sell weapon Russia, 5 minute later after insult England sell weapon Russia.

This is typical dishonorable behavior when confront them with it, they shirk.

No honer.
17 reality check (#) Jul 25th, 2014 - 03:33 pm Report abuse
No honour?

An Argentine officer gives evidence of how an SAS officer fought to his death.

A Royal Navy fighter pilot gives evidence of how a courageous pilot stayed with his aircraft until the very last moment.

Argentines bury a dead British fighter pilot with full military honours.

British officers acknowledge the courage of Argentine soldiers holding their positions to their death.

Wounded men treated by degree of their injury not their nationality.

What the fuck do you know about honour????????
18 Alistair Nigel (EUian) (#) Jul 25th, 2014 - 04:24 pm Report abuse
See you not smart, no compartmentalizationalizing ability.

Honer of saying what meant in negotiation not war. You can be courage in war, coward in peace.

And viceversa.
19 ChrisR (#) Jul 25th, 2014 - 04:29 pm Report abuse
@ 17 reality check

Don't lose your rag over the imbecile, he's not worth it.

Those with intellect, honesty and strength of character of whatever nation know the truth, the imbecile has none of these qualities.
20 El Polaco (#) Jul 25th, 2014 - 04:31 pm Report abuse
Isn't this case full of surprises? When I first read this article, I thought this would be Griesa's way out, his rationale for granting a stay. I doubt it, however, as from the beginning, this judge has steadfastly ignored all the other complications in the case so I doubt he will get cold feet now. I hope I'm wrong about that.

The questions about how the bonds should be treated in the Feb 23 order, may not influence Griesa, but they will certainly come into play if a default should occur next week. If there is a default, Argentina will not fall off the edge of a cliff as so many here would like. Rather it will be more like entering a swamp of new suits and legal arguments about who has the right to collect what from whom and when. It will probably take as many years to get out of that swamp as it has taken to get into it.

Judge Griesa could give everyone a break by granting a stay until January when all parties can get together and finally put this mess to rest.

By the way, I'd like to say this is a nice piece by Floyd Norris. Given that it has implied some serious criticism of the US legal system, it must have been difficult to get this one past his editors at the NYT. Good job, Floyd.
21 reality check (#) Jul 25th, 2014 - 05:25 pm Report abuse
Tittyboy.

Your such a fucking idiot, didn't anyone tell you that war is is the result of a failure of politics!!!!! That all politicians lie and there is no honour amongst politicians.

Politicians are only in office for one ting only, themselves! If they were any good at anything else they would not be politicians!

You need to stop Concerntrating on languages and study other subjects, because you are woefully naive about the realities of life.

Let me educate you. Politicians are in politics for one reason only, themselves.

If they were any good at anything else, they would not be in politics.

Why do you think so many of the cunts are failed lawyers?????
22 Conqueror (#) Jul 25th, 2014 - 06:14 pm Report abuse
@5. You're a funny little girl, aren't you? How much time do you spend every day wading through stuff to try to cheer granny up? Why don't you give her the money yourself, you cheapskate. But let's deal with this sensibly. Judges in the important parts of the UK are properly known as British judges. Of course, there are some argies that can't “Think” that far. Even some scotch judges are referred to as being British. Now, argieland deposits money in the Bank of New York Mellon. British judge has no jurisdiction. Even if the judge wrote and asked “pretty please” who is the Bank going to obey? The “trustee” is the Bank of New York Mellon. Not branches or subsidiaries. Go on, be a sport. Pay granny! You'll get it back, maybe, if argieland quits pissing about.
@14,16,18. You poor child. What's a EUian? I seem to recall that phraseology being used by a retarded argie with less “ability” than a brain-dead turd. Do turds have brains? No. But they do stink. And they are stupid. Much like argies. Nothing else really. Argie turd is much like a murdering, russian-speaking, terrorist in the Ukraine. Or a murdering, terrorist, so-called “palestinian” in Gaza. All very similar. “Look I'm firing rockets at the people who gave me the land I'm living on even though it's been theirs for at least 3,200 years and I want to wipe them out”. AND “Look at me. I didn't believe in the democratic process and decided to shoot down a civilian airliner belonging to another country and loot it, because I want to be russian”. So piss off over the border and be russian. “Look at me. I'm a thick, childish, schizophrenic argie turd”. In a new departure for the world, argie turds are to be shot on sight. There's no particular order. “Argieland is honorable” is the only reason you need.
@20. And look, here's another one. ”Attention, aim, wait for it, (wait until it opens its dumb mouth again).........!
23 british bomber (#) Jul 25th, 2014 - 06:47 pm Report abuse
@11
But it is against the law of England. That is what is important. An English judge will fix this up.
24 Troy Tempest (#) Jul 25th, 2014 - 06:55 pm Report abuse
23 Hepatia from Argentina

“ An English judge will fix this up.”

The “ English” have no jurisdiction.

The UK laws are not applied retroactively.

You're dreaming, you half-wit
25 Briton (#) Jul 25th, 2014 - 07:17 pm Report abuse
True...lol
26 british bomber (#) Jul 26th, 2014 - 02:43 am Report abuse
at 24
Don't know hepatia. We are British. Never been to Argentina.

So English law not in England. You yanks want Yankee law in England. Never happen. We are not your colony. We do not bow down to your wall st bankers. You ate very stupid. We English have justice. We are the 93%.
27 Troy Tempest (#) Jul 26th, 2014 - 03:26 am Report abuse
26 Hepatia

your English sucks

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