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 FT Alphaville writer hasn’t read Capital in the Twenty-First Century (YES, OKAY, SORRY).
However, this is so good from William Porter and team at Credit Suisse, it’s time to reconsider: Read more
We can imagine that’s something of a trigger word for Greek bondholders with long memories. Read more
How many sovereign debtors get to be both in hock to the Russians, and using the United States’ full faith and credit to borrow fresh money?
Though we suppose Ukraine’s a special case: Read more
The currency devaluation and official borrowing (to help finance a still-wide government deficit) are expected to push public sector debt up to 57 percent of GDP…
– IMF announcement of $17bn loan programme for Ukraine
Although don’t worry — that’s a whole 3 per cent before a unique debt threshold clause conceivably allows the Russian government to convert $3bn of Ukrainian bonds, which it owns, into demand money. Read more
Coupon not fixed yet. But note a) that they’ve hired lots of banks to sell this and b) the law… Read more
The prospect of selling any sovereign territory to resolve disputes may seem like a taboo — especially so when it comes to the conflicted territory of Crimea. However, Joseph Blocher and Mitu Gulati, both law professors at Duke University, argue that such a “market” should in future be considered in public international law.
______________________ 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
When your creditor takes some of your territory — can you make that territory take some of your debt? Mitu Gulati, a law professor at Duke University, last wrote for us on Russia’s $3bn Ukrainian bond. With Russia reinforcing its annexation of Crimea, Mitu considers Ukraine’s options with its debt after the secession.
___________ Read more
What to do when your creditor invades? Beyond its occupation of Crimea, Russia remains a lender to Ukraine — even as IMF teams ponder the Kiev government’s financial sustainability. Mitu Gulati, a law professor at Duke University, considers both sovereigns’ options.
________________ Read more
Notwithstanding the approval and publication by the Central Bank of Ireland of the prospectus dated 17 February 2014 in relation to the undermentioned proposed issue of securities, the Issuer hereby confirms that no such securities will be issued.
UKRAINE REPRESENTED BY THE MINISTER OF FINANCE OF UKRAINE Read more
Moscow doesn’t send tanks into revolting former vassals any more. It sends dollars.
For anyone who decides to follow the money when it comes to Ukraine’s split between the EU and Russia, the consequences can sometimes be grimly surreal when it gets to the prosaic matters of bond finance. Read more
Just how much would tickets go for at a German Constitutional Court hearing into any future quantitative easing programme by eurozone central banks… if a €1tn programme could easily buy a fifth of German bonds in a year?
This post is just to flesh out a point in this great piece by John McDermott — so read that first.
But we think it’s an important point. An alternative title for this post: What’s under your gilt?
After all, it is the debt that has enabled Her Majesty’s government to turn so breezily confident that currency union with an independent Scotland “is not going to happen”, fully seven months before an independence referendum. Read more
Arguably, none of the below matters now.
That’s the prime effect of the German constitutional court turning to the European Court of Justice for a ruling on whether the ECB’s sovereign bond-buying programme is a “structurally significant transgression of powers” under European treaty law.
Big words. But the backing of the Bundesverfassungsgericht judges (pictured right) for that view gets rendered into just another opinion, pending the ECJ’s decision. And the arc of the ECJ’s justice is long, turgidly written, but ultimately quite friendly to pieces of bailout architecture that have an odd relationship to the treaties — as in past musings on the ESM.
But the really interesting thing is that regardless, the OMT’s purpose apparently remains almost completely lost on the court. Read more
First, rewrite history (as Aufhebung). Read more
Those rascal short sellers are at it again, daring to ask awkward questions of the European project. This time the manifesto comes from New York based Tortus, who have a plan to “rehabilitate” Portugal. (H/T @Pawelmorski and @IyerC).
Before rehabilitation, however, there must come acceptance, and Tortus is short “certain Portugese sovereign bonds” because it does not think the status quo is sustainable. Read more
Just to put an already-huge year-end move in Portuguese bond yields into some wider context…
Here’s a chart (via Reuters) of the five-year yield since August 2010 — to which levels it’s now, roughly, returned. Click to enlarge.
These are some mountains in Carinthia, Austria. Bucolic.
That, meanwhile, is the logo of Hypo Alpe Adria, a regional lender rescued by the Austrian government in 2009, and which has now sprung another, €800m black hole… and it is just possible that the name is going to be as memorable as Amagerbanken or SNS Reaal for European banks’ bondholders. Potentially it may be a less than bucolic precedent for sovereign debt, too. Read more
A useful chart from Citi on Thursday morning (which you may click to enlarge), on the recent rise in bank holdings of sovereign debt. 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
Noted simply because we didn’t know it existed before:
COMMONWEALTH INSCRIBED STOCK ACT 1911 – SECT 5
Limit on stock and securities on issue
(1) The total face value of stock and securities on issue under this Act and the Loans Securities Act 1919 at any time must not exceed $300 billion…