UPDATE 2-Argentina loses bid for U.S. court rehearing in bondholder case

Mon Nov 18, 2013 6:47pm EST

By Nate Raymond and Daniel Bases

NEW YORK Nov 18 (Reuters) - A U.S. appeals court on Monday declined to reconsider an order requiring Argentina to pay $1.33 billion, ruling in favor of bondholders who refused to participate in two debt restructurings spinning out of the country's 2002 default.

The 2nd U.S. Circuit Court of Appeals in New York denied a petition by Argentina for rehearing by all of the judges sitting on the court.

The court's decision sets the stage for Argentina to go to the U.S. Supreme Court in a case that has created concerns about a potential new debt crisis following Argentina's $100 billion default more than a decade ago.

The decision on Argentina's request for a so-called en banc hearing is a victory for bondholders led by the hedge funds NML Capital Ltd, which is a unit of Paul Singer's Elliott Management Corp, and Aurelius Capital Management.

"The Supreme Court previously rejected Argentina's appeal and today's unanimous decision of the 2nd Circuit only reinforces that Argentina's self-serving pleas do not warrant the Supreme Court's attention," said Theodore Olson, a lawyer for NML.

Argentina has refused to pay the holdout bondholders, who Argentine President Cristina Fernandez has called "vulture funds."

Fernandez, the 60-year old Peronist leader, resumed her presidential duties on Monday and appeared on television for the first time since undergoing brain surgery five weeks ago.

Argentina's continued refusal to pay up could result in U.S. courts enforcing injunctions blocking payment overseas to bondholders who participated in prior restructurings in 2005 and 2010, possibly causing a new default.

In an attempt to avoid such a default, these bondholders who participated in one or both of the exchanges said on Monday they were organizing an effort to propose a solution and end the litigation.

"In an attempt to create a solution for a decade-old standoff, exchange bondholders have held several meetings over the last couple of weeks and are forming an ad hoc group and a steering committee to formalize a proposal for a global resolution, end litigation and avoid a default by Argentina," Robert Koenigsberger, managing partner and chief investment officer of Gramercy Funds Management said in an e-mailed statement.

The U.S. Supreme Court previously declined to hear an earlier appeal by Argentina in October. The top U.S. court likely would not decide whether to hear any new appeal by Argentina until sometime in 2014.

Government spokespeople contacted in Buenos Aires had no immediate comment on the ruling.

"We welcome the idea of good faith negotiations with Argentina, but we don't see the point of negotiating with other bondholders," an NML spokesman told Reuters.

The case is one of a multitude of lawsuits filed by creditors of Latin America's third largest economy following its historic 2002 sovereign debt default.

Creditors holding about 93 percent of the country's bonds agreed to participate in the two previous debt swaps in 2005 and 2010 which gave them 25 to 29 cents on the dollar.

Other bondholders including NML and Aurelius went to court seeking payment in full. The litigation was filed in New York under the bond documents' terms.

NML has said it approached Argentina "countless" times to come to a solution but has always been rebuffed.

In 2011, U.S. District Judge Thomas Griesa found Argentina breached a clause in the bond documents that required the equal treatment of creditors.

The 2nd Circuit upheld that decision in October 2012 but sent the case back to Griesa to decide how the injunctions he had issued would work.

In November 2012, Griesa issued a subsequent order requiring Argentina to pay the $1.33 billion into a court-controlled escrow account favoring the holdout creditors.

A three-judge panel of the 2nd Circuit upheld Griesa's order in August, but put the effects of the order on hold pending a timely appeal to the Supreme Court.

The 2nd Circuit on Nov. 1 refused to lift the stay, a request the holdout bondholders made after Fernandez proposed a voluntary swap of foreign debt in exchange for bonds governed by local law.

The case is NML Capital Ltd et al v. Republic of Argentina, 2nd U.S. Circuit Court of Appeals, No. 12-105.

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Comments (1)
GermanHoldout wrote:
After this Judgment, Argentina please negotiate!!! Probably, also the US Court wants negotiations, may be that is why, they left the “stay”.

Argentina’s nightmare default, this since 2002 ongoing HORROR must finally have an end!

Then, Argentina could return to the capital market and thus could refinance the payments to the holdouts, without using reserves.

We, holdouts, have been suffering for more than a decade!!

Since 2002, Argentina paid NOT A CENT to the holdouts!

The Argument, that paying the debt to the Holdouts would establish a poor precedent for the chances of effectively concluding any future sovereign debt restructurings is not true, because after Argentina’s 2001 Default almost all bonds imply the Collective Action Clause (CAC). A collective action clause (CAC) allows a supermajority of bondholders (75%) to agree to a debt restructuring that is legally binding on all holders of the bond, including those who would vote against the restructuring.

BUT, This CAC is NOT implied in Argentina’s defaulted old bonds! Accordingly, Argentina MUST fulfill the bond contracts and repay the debt to the holdouts!

Argentina HAS clearly the capacity to repay the debt to the holdouts after more than a decade! The outstanding debt is only approximately 12 Billion (incl. accrued interest) to the holdouts. It is absolutely nothing for the 2. largest economy in South America.

And if Argentina and the holdouts would make still this year a binding agreement, then Argentina could return to the capital market and thus Argentina could refinance the debt payments to the holdouts, without using reserves.

Beyond the U.S. Hedge Funds there are still tens of thousands retail Holdouts worldwide, most of them from Italy and Germany.

Most of the Holdouts are “before default buyer”, who have bought their bonds at an average of 100% or even over.

President Kirchner should show goodwill and offer an acceptable solution for the holdouts, so she would not be dealt in the history books as the solver of the decade old default.

Holdouts want a simple, clear, secure and an ACCEPTABLE solution.

Can Gramercy offer a solution as described below? If yes, then it is ok. But how should Gramercy carry out secure such a transaction? Inconceivable, that it could work. Gramercy could be perhaps an “intermediate agent” between Argentina and the Holdouts, as e.g. Deutsche, Barclays and Citi banks were in previous swaps.

Holdouts do not want such exotic financial constructs, as they were the swap conditions in 2005 and 2010, with an exorbitant Haircut, with many new bonds, with only Discount bonds above $50000, GDP Warrants etc., and with maturities in the eternity. Such “shares like” financial constructs are inacceptable.

Summarized the following could be a solution.

Argentina and the holdouts make STILL THIS YEAR A BINDING AGREEMENT with respect to the “time after” (end of the “Rights Upon Future Offers (RUFO)clause) with the advantage that seizure risks and a technical Default would thus be immediately averted.

Then, Argentina could immediately return to the capital market and thus Argentina could refinance the below payments to the holdouts, without using reserves.

Concretely, the following simple conditions might be acceptable for the Holdouts and may be also for Argentina:

- at the latest, on 01/01/2015 (end of RUFO) Argentina should repay in CASH 100% of the nominal value of the defaulted bonds, which became due before 2015

- for the accrued interest between 2002-2015 Argentina should emit new bonds with 50% discount, and with a maturity of 5 years.

Nov 19, 2013 2:14pm EST  --  Report as abuse
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