Saturday, March 26, 2016 Appeals court summons ‘vultures’ for April 13

Saturday, March 26, 2016

Appeals court summons ‘vultures’ for April 13

United States District Judge Thomas Griesa is seen entering his chamber in a file photo.

US gov’t files brief supporting Argentina’s claim and backs Macri’s economic measures

NEW YORK —The United States Second Circuit Court of Appeals yesterday summoned Argentina and the “vulture” funds for a hearing on April 13 to decide on US Judge Thomas Griesa’s ruling that lifts the injunctions against the republic — one day before the deadline to pay the US$4.6 billion deal to the largest holdout funds expires.

The date was set despite Argentina’s request for a hearing on April 4, which would have given the government enough time to get the funds to pay Elliott Management and Aurelius Capital. The Mauricio Macri administration will now have to negotiate with them for the deadline to be extended some extra days.

Creditors who haven’t settled and some of the largest holdout funds appealed Griesa’s decision to lift the injunction against Argentina. Otherwise, new appeals could take place and the debt talks could fall apart, they claimed.

Macri’s administration proposed a US$6.5-billion payment to settle the long-term legal battle stemming from Argentina’s record US$100-billion default in 2001. Of the approximately US$9 billion still outstanding in claims, the government has asked creditors to accept an average 25-percent haircut, vowing to pay them up front in cash, facilitated through the issuing of new bonds.

The offer has already been accepted by small and large creditors, including the toughest holdout funds Elliott Management and Aurelius Capital. That led to Griesa agreeing to lift an injunction against Argentina, which prevented it from servicing its restructured debt. The ruling frees Argentina to pay holders of its restructured bonds, who are now owed more than US$3 billion in past-due interest.

But, as part of the deal with NML and Aurelius, Argentina has until April 14 to pay the US$4.6-billion while it moves forward in the Congress with its attempt to remove the Sovereign Payment and the Padlock laws, which prevent the country from offering holdouts better terms than those the nation offered in 2005 and 2010. The Lower House has already agreed and now the Senate is expected to vote on Wednesday.

The government’s bill authorizes the Mauricio Macri administration to issue US$12.5 billion in debt to cancel the US$11.8 billion pending payment with the holdout funds. The timing and currency of the bond offering are not yet certain but the series were expected to come to market in early April.

Argentina has already named BBVA, Citigroup, Deutsche Bank, HSBC, JP Morgan, Santander and UBS as joint bookrunners for a possible bond sale, sources told Reuters this week. Citigroup’s head of emerging markets Guillermo Mondino wrote this month that an Argentina bond sale could pay yields of 7.25 percent on a five-year, 8.4 percent on a 10 and 9.7 percent on a 30.

Griesa has already warned that he won’t allow any judiciary actions that could block the bond issuance.

Amicus curiae

Following US President Barack Obama‘s visit to Argentina, the US Justice Department filed a brief to the Second Circuit Court of Appeals to uphold the lifting of the injunction that has restricted Argentina from paying off some of its debts.

The US government has “significant foreign policy interests in supporting a swift resolution to this long-running litigation,” the US Justice Department said, arguing that vacating the injunction would back the US government’s interests in supporting Macri’s efforts to strengthen the economy.

“Vacate of the pari passu injunction is a critical step toward concluding the litigation and hastening the Republic of Argentina’s resolution of its outstanding liability to plaintiff bondholders, allowing Argentina to emerge from default to its exchange bondholders, and facilitating its return to the international financial markets,” the brief reads.

Not lifting the injunction could have “serious consequences” for the Argentine economy and for US policy interests in the region, the US Justice Department said. Solving the conflict would “stimulate economic growth going forward” while giving Macri “breathing room to implement positive economic reforms.”

“In contrast, without access to international capital markets, the Argentine government risks forfeiting the strong investor and public confidence that have greeted President Macri’s intention to accomplish disinflation in the context of correcting the serious macroeconomic imbalances that his government inherited,” the brief reads.

The US claimed the injunction affected the relations between the United States and Argentina, describing it as a “valued G20 ally on global issues.” At the same time, the injunction led to a “proliferation of problematic proposals” such as the one issued at the United Nations proposed by Argentina to create a new sovereign debt framework.

“The Macri administration has made significant efforts to implement beneficial fiscal and monetary reforms, including its efforts to settle the bondholder dispute,” the brief reads, claiming Macri “inherited” a large budget deficit along with “depleted” Central Bank foreign-currency reserves.

The US avoided to take a position over the “reasonableness” of the settlement offers but noted that “more than 85 percent” of the claims held by plaintiffs with injunctions were subject of agreements in principle with Argentina. The refusal to vacate the injunction would deny them “the opportunity to resolve their disputes amicably with the republic.”

“The pari passu injunctions should not stand in the way of consensual agreements thatpromise to bring to a close more than fifteen years of litigation,” the brief reads. “The remaining holdout bondholders could use the pari passu injunctions as a tool to maximize their own recovery, at the expense of the majority of the settling bondholders.”

Herald with Reuters