Home' Trinidad and Tobago Guardian : June 22nd 2014 Contents JUNE 22 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
INTERNATIONAL | SBG23
Argentina s plans for making peace with
the international financial markets had been
going rather well. The country belatedly com-
plied with decisions of the International Centre
for Settlement of Investment Disputes, an
arbitration body, it compensated the Spanish
company Repsol for the expropriation of its
shares in YPF, the state oil firm, and only last
month it reached a settlement with the Paris
Club, an informal group of government cred-
This week, however, Argentina s path to
normality became a good bit harder.
On June 16, the Supreme Court of the
United States declined to hear Argentina s
appeal against NML Capital, a "vulture" fund---
and a subsidiary of Elliott Management, a
hedge fund---that had snapped up cheap bonds
after Argentina s 2001 default. The bonds were
governed by New York law, and since then
the fund has pursued the country in US courts
for the payment of all principal plus outstand-
ing interest. NML followed this "holdout"
strategy instead of accepting new bonds worth
one-third of the originals at the time, as did
creditors holding 93 per cent of the defaulted
debt in exchanges in 2005 and 2010.
The fund s legal case hinges on the argument
that a "pari passu" clause in the original bond
documentation, which guarantees equal treat-
ment for investors, bars Argentina from paying
holders of the exchanged debt if it does not
also pay the holdouts. A New York district
court and appeals court backed this view,
leading Argentina to petition the Supreme
Court to hear the case.
Minutes after dismissing that request, the
Supreme Court also decided against Argentina
in a separate suit, allowing NML to locate any
assets Argentina may have squirreled away
Bereft of legal recourse, Argentina is left
with four ugly options. It can pay NML the full amount
it demands, as much as $1.6 billion, opening itself to
claims from other holdouts. It could try to negotiate
a smaller payment with NML and other vultures. It
could attempt to "reroute" its exchanged bonds so that
they come under Argentine law. In the worst case, it
On June 17 Economy Minister Axel Kicillof dismissed
the options of full payment or of outright default as
unthinkable. He said that the government would attempt
to reroute its exchanged bonds from New York to
Argentina, away from the reach of the United States
courts. That would allow Argentina to continue paying
the creditors with whom it struck deals in 2005 and
2010, without paying the holdouts.
"Transferring the bonds to local law would be very
difficult at the street level," warns Henry Weisburg of
Shearman & Sterling, a law firm.
First, he says, Argentina must convince a majority
of holders of the exchanged bonds to agree to the swap.
This task may be insurmountable, given that many of
the current creditors are bound by rules restricting them
from holding assets under foreign jurisdiction.
Even if Argentina were to succeed in persuading
holders of the exchanged bonds to take the plunge, any
intermediary that helped facilitate the rerouting would
risk being held in contempt of the New York courts.
Thus Argentina would need to find an intermediary
that is not, and has no desire to be, subject to New
Lastly, Argentina would need to convince Bank of
New York Mellon, its current trustee, to release infor-
mation about the bondholders to its new intermediary.
That could put the bank into contempt, and it already
has said that it "will comply with any court order by
which it is deemed bound."
It may be that raising the prospect of this rerouting
maneuver is designed to give Argentina leverage in
negotiations with the holdouts. On June 18 a lawyer for
the country told the New York District Court judge
who originally ordered the country to pay NML that
Argentina was willing to haggle.
Negotiations would be complicated, however. One
pitfall is technical: In the past Argentina has argued
that settling with holdouts would activate a Rights Upon
Future Offers clause in the exchanged bonds, which
expires at the end of this year, meaning that they would
be eligible for whatever terms the holdouts got. RUFO
is activated, NML ripostes, only if the offer made to
the holdouts is voluntary. Since Argentina is subject to
a judgment ordering it to pay NML, the fund believes
that the courts would interpret any settlement as invol-
Other obstacles to a settlement are even more for-
midable. The first is political. President Cristina Fernandez
de Kirchner of Argentina and her advisers have fulminated
against NML and the vulture funds, swearing that they
never would pay them or negotiate with them. Settling
after making such a fuss would be a violent reversal.
Then again, Fernandez has made other U-turns. She
paid off Repsol, even after Kicillof had stated that the
government would not give it "even one cent," and
devalued the peso earlier this year after promising not
to.A second issue is what to do with other holdouts.
If Argentina settles only with NML, the other vultures
will demand the same terms. Better to deal with them
all at once, Weisburg says, but that raises the biggest
question of all: Argentina s constrained finances. With
its foreign-exchange reserves having dipped below
US$29 billion, Argentina does not have a great deal of
room to offer the holdouts an attractive deal.
Few outsiders will have much sympathy for Argentina s
predicament. The wider question is what effect the
decisions of the American courts will have on other
sovereign borrowers. Some fret that the ability of strug-
gling countries to restructure their debts has been
dented. Holdouts everywhere have greater incentive to
litigate. Creditors who otherwise might have accepted
an exchange offer now could find deals picked apart
by vultures. The Economist
Argentina's bonds: A good week for (some) investors
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