With Argentina in default, the pari passu saga has become a long, ludicrous, gruelling standoff — which plenty of financial institutions and Argentina’s restructured bondholders have been trying to escape.
And then running smack into the US court system.
On Friday the Second Circuit Court of Appeals dismissed an appeal by Citibank to get local-law, US dollar-denominated restructured bonds (the ones with the ISIN confusion) out of the pari passu embargo: Read more
The Holders of a Majority in aggregate principal amount Outstanding of the Debt Securities of any Series may at any time remove the Trustee and appoint a successor trustee for the Debt Securities of such Series…
– Argentine exchange bond trust indenture (2005) Read more
“I’m a little nervous,” the President of Argentina told the nation on Tuesday night.
President Cristina Fernandez de Kirchner had just sent a draft law to the Argentine congress.
This would offer restructured bondholders to route around New York law into Argentina’s domestic jurisdiction, set up local payment for them in the meantime, and in general, attempt to remodel bonds free of holdout lawsuits and a default that could last a long time.
And on Wednesday the market more or less retorted that it prefers to hold the defaulted paper anyway. Read more
That is, Argentina filed a case at the International Court of Justice in the Hague on Thursday — claiming that US court decisions in the pari passu saga have violated its sovereign immunity in public international law.
Note that Argentina originally waived immunity within the New York law bonds owned by the holdouts. Read more
See the attached for an important announcement by the Brasil Sovereign II Fundo de Investimento de Divida Externa… (H/T Bloomberg)
It is getting to a week since holders of Argentina’s restructured bonds first had the opportunity to cry default and demand full and immediate payment. So we thought we’d ask.
And as Morgan Stanley’s analysts pointed out on Tuesday, there is $13bn of paper out there eligible to be accelerated — $30bn, counting cross-default clauses in debt which has not had payments missed yet. Read more
That was the Argentine economy minister, Axel Kicillof, shortly before pixel time, having announced a (rejected) ‘offer’ of the same terms as Argentina’s restructured debt to the holdouts; blamed Judge Griesa; and otherwise prepared his country for default. Direct negotiations, in short, are over for now. Read more
Update – Midnight UK time: Argentine press was reporting at pixel time that the country’s banks may provide collateral to the holdouts for a temporary stay. Argentina would then use the stay to ask restructured bondholders to consent to waiving the RUFO clause. (Using private banks to pay the collateral would avoid a RUFO trigger.) Also at pixel time, Argentina’s economy minister had entered negotiations in New York — so something was up.
The talks may move quickly into Wednesday. But the emergency stay request in the original post below shows some of the issues here… Read more
We are one day away from Argentina’s second default this century. Drama or farce?
Farce. For all the confusion that was on show in Judge Griesa’s hearing last week, about whether Argentina’s restructured local-law bonds should join the foreign-law debt within the pile of paper at risk…
At least holders of these bonds will be OK after all on Wednesday.
Only just this once, though. And they were let off for a reason which underlines tensions we’ve been noting in the pari passu saga between enhanced powers to enforce sovereign debt, and the complexity of international finance. Read more
With less than a fortnight until Argentina risks defaulting on its restructured debt, there will be another hearing in the pari passu saga later on Tuesday. After a look at Argentina’s position, now for what Judge Griesa’s hearing will focus on — restructured bondholders who argue that he has no jurisdiction over them…
Notably, local-law restructured bondholders. Read more
“Madmen in authority, who hear voices in the air,” Keynes wrote at the end of the General Theory, “are distilling their frenzy from some academic scribbler of a few years back.”
In Argentina, the scribblers are sovereign bond contract draughtsmen. Read more
“The recalcitrant scum of the earth, I believe?”
“Ah, the vultures of global usury, I presume?”
To commemorate the beginning of negotiations in New York later on Monday between Argentina and Elliott… Read more
In the Alphaville corner… 64 posts and counting of the saga:
Dear Cleary Gottlieb (Argentina’s lawyers): good luck defending this one.
From page 7 of Monday’s dead-tree FT — Argentina’s announcement that it is about to default. Naturally, given the bizarro world of the pari passu saga, this announcement is headlined ARGENTINA PAYS. Click to enlarge: Read more
Judge Griesa has denied Argentina’s request to stay the pari passu order beyond June 30 (below).
Argentina has said that it’s deposited enough money to pay the restructured bonds on that date. Read more
Delivered by Cleary Gottlieb on Monday — and freshly tweeted by La Presidenta. Click to enlarge: Read more
Hat-tip to Joe Rennison at Risk.net, and Bloomberg — a mystery “CDS Holder” has asked Isda’s determinations committee to look at whether Argentina’s government could have potentially triggered CDS on the country during its confused responses to defeat at the Supreme Court last week…
The request — to extend a maturing CDS contract, hence the ‘potential’ language — centres on the economy minister’s statement last week that the judgment made paying the restructured debts “impossible”: Read more
Here’s the order which Judge Thomas Griesa made late on Friday, forbidding Argentina from swapping its restructured bondholders from New York law to its local legislation… Read more
We cannot allow that we are prevented from honouring our commitments to 93 per cent of bondholders. We are going to initiate a debt swap to pay the bonds in Argentina, under local legislation…
That would be Axel Kicillof, Argentina’s economy minister.
Late on Tuesday, Kicillof revealed the Argentine government’s actual plan for life after its final defeat in the pari passu case — a canje, or swap out of New York legislation into local law for its restructured debt, to avoid paying everyone (or no one) in New York as per the pari passu injunction.
If you can’t get the US courts to throw the problem out of your bonds, get your bonds away from US courts.
A flawless plan — if the US courts weren’t already furious with Argentina, and if the entities whose help the republic would need to organise a swap (lawyers, payment agents, and so on) weren’t subject to those courts. Read more
And yet somehow — we sense the pari passu saga isn’t over yet.
This would be despite the completeness of Argentina’s defeat in the sovereign debt trial of the century… Read more
Later on Thursday, the US Supreme Court may decide whether to accept or reject Argentina’s pari passu case. Rejection could mean a swift end to the saga. Argentina would be left to decide whether to comply with paying bond holdouts alongside its restructured debt, or defaulting on both, or settling with the holdouts.
It’s always possible however that the court decides another day, or just asks the US Solicitor General to advise. That can take months. Hey. It’s the pari passu saga. (Update: no decision after all from the court on Thursday, it seems.)
Still, this is a moment for the enforcement of sovereign debt, supposedly the least enforceable of financial instruments. That’s a fascinating subject in itself. In fact we argued in a paper forthcoming in the Capital Markets Law Journal that the origins of pari passu may lie in enforcement. What pari passu ‘means’ in sovereign debt may not matter so much as its use.
We wrote it as one of many responses to Mitu Gulati and Benjamin Chabot’s great study of one possible origin for pari passu, in a Mexican bond of the 1840s, the ‘Black Eagle’. We’ve placed an expanded and version below. Warning, it’s 2,500 words and is in an academic style. But we hope it’s some context for the saga… Read more
On Thursday, we reported on a memo by Cleary Gottlieb, lawyers to Argentina in sovereign debt matters.
The memo suggested that the “best option” for its client would be to default upon its restructured bonds — then to immediately reroute their payments beyond the reach of US courts — should the US Supreme Court decline in the coming weeks to review an order requiring holdouts to be paid too. (Update: full memo here, as a Word doc.)
Which is rather extraordinary advice. The memo also emerged in the week Argentina supposedly showed good faith to the Paris Club. (And in fairness, the memo also considers settling with holdouts).
On Friday, the holdouts’ lawyers beat a path to the courthouse. Read more
Argentina made a deal with the Paris Club on Thursday. A mere 13 years after defaulting on them.
The scheme offers a framework for a sustainable and definitive solution to the question of arrears due by the Argentine Republic to Paris Club creditors, covering a total stock of arrears of USD 9.7 billion, as of 30 April 2014. It provides a flexible structure for clearance of arrears within five years including a minimum of USD 1150 million to be paid by May 2015, the following payment being due in May 2016…
And yes, this means something to the pari passu saga.
It means that a deal with holdouts is a matter of time. Read more
This year’s IMF-World Bank Spring Meeting is likely to include discussion of proposals to change the fund’s policy on sovereign debt restructuring. Gabriel Sterne, senior economist at Exotix with IMF experience, and Charles Blitzer, Principal at Blitzer Consulting and a former IMF staff member, argue in favour of a case-by-case approach.
_______________ Read more
Ah, spring: a season of renewal. The scent of flowers carried on a gentle breeze.
And the international financial community can go back to arguing all over again about whether a promise which Argentina made in a bond issued twenty years ago – to treat creditors equally – will end up making sovereign debt restructuring harder to achieve. Read more
Typical — you take off as the risk on Spanish bonds fades… only to get sold off as Argentina implodes. Read more
Article 5 — In the event of operations involving amounts that meet or exceed THREE HUNDRED AND FIFTY THOUSAND PESOS, registration managers should define a user profile, which will be based on information and documentation relating to the economic, household, financial and tax situation, and will require supporting evidence or information which proves the origin of funds.
That’s FT Alphaville’s (very rough) translation of Disposición 446/2013 from the Argentine government. H/T Bloomberg. It’s about buying expensive cars. Read more
Wait a minute, Doc. Ah… Are you telling me that you built a time machine… out of a sovereign bond contract?
– Marty McFly (paraphrased)
Imagine the next place to come under the new era of enforcing sovereign debt isn’t Argentina, or in the Caribbean, or even a future eurozone crisis. Imagine something… older. Much older. Read more
Exciting. There’s now a whiff of political glasnost surrounding Argentina’s pari passu saga.
Or not exciting. The saga might just get two years of a lame-duck president waiting to pass the holdout problem onto the next occupant of the Casa Rosada. (The Second Circuit also denied requests to lift the stay on the order for Argentina to pay holdouts on Friday, so we know the litigation is going to go on a bit longer.)
But that makes it all the more interesting to reconsider those recent, rather odd, whispers of a plan for Argentina’s restructured bondholders to go around the sovereign that really, really doesn’t want to pay — and make a deal for Elliott and co to go away themselves, dropping the demand of ratable payment from the Republic. Read more