Posts tagged 'Sovereign Debt'

A message from CFK

The fact is that Argentina has shown, and maintains, a willingness to negotiate. What it does not hold with is, well, let’s say it, let’s spell it out, to be subjected to extortion. I do not believe that either our country or our bondholders deserve to have impeded, or to have seized, the funds that we will pay later this month, on June 30, we have $900m maturing and we will pay it…

I have instructed the ministry for the economy and all the technical agencies of the national state to prepare all the instruments and all the strategies necessary such that all who put their confidence in Argentina get their money, get the dollars which we have committed to pay. But we want to do that with seriousness and responsibility.

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Bad day to be a recalcitrant sovereign debtor

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

The injunction has landed: Pari passu, the Black Eagle, and sovereign debt enforcement

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

Recalcitrant, moi? The courtroom version

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

Recalcitrant, moi?

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

Credit Suisse reads Piketty

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

Tax doesn’t have to be taxing, except when it’s a Greek bond tax [updated]

“R-r-r-r-retroactive?”*

We can imagine that’s something of a trigger word for Greek bondholders with long memories. Read more

Ukraine, Gazprom, and the full faith and credit

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

It’s Mostly Fiscal, Ukraine edition

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

That new Greek bond — the terms

Coupon not fixed yet. But note a) that they’ve hired lots of banks to sell this and b) the law… Read more

Guest post: What if Putin had bought Crimea?

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.

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Guest post: The IMF approach to sovereign debt restructuring

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.

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Credit ratings are weird, Crimea edition

Ho ho Standard & Poor’s, very clever, but we saw right through your April Fool’s joke.

First, the parody of lifeless regulatory jargon here is just a little too carried away: Read more

Pari passu, plus ça change

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

Guest post: Ukraine’s debt — now comes the interesting bit

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.

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Guest post: Mr Putin’s clever bond issue

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.

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So long, Ukraine $1,984,838,000 5.00 per cent Notes due 2015

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

Ukraine $1,984,838,000 5.00 per cent Notes due 2015 — and the burning tyres therein

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

The €1,000,000,000,000 question

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?

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How Scotland really lost sterling union

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

The OMT — um, what does this thing do again? A Bundesverfassungsgericht guide

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

How to translate “QE” into German

First, rewrite history (as Aufhebung). Read more

The Tortus sell is Portugal

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

Eurozone sovereign convergence redux?

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.

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Bondholder Hypo-thermia, in Austria

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

In the loop

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

Back to the future with pari passu

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

Look ma, no uniquely recalcitrant sovereign

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

So, Australia has a debt ceiling too

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

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Extremely cheap shots, House recalcitrance edition

Here’s a list of the 144 Nays on last night’s House debt ceiling vote (so implicitly, then, 144 votes to find out how long the US could have gone before defaulting). Click to enlarge.

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