U.S. court signals narrow bondholders win in Argentina subpoena case

WASHINGTON Mon Apr 21, 2014 4:14pm EDT

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WASHINGTON (Reuters) - U.S. Supreme Court justices on Monday indicated that creditors should be able to seek limited information about Argentina's non-U.S. assets in a case about bank subpoenas in decade-long litigation over Argentina's obligations to bond investors.

During a one-hour-long oral argument over hedge fund NML Capital Ltd's efforts to seek payment of court judgments it says are worth around $1.7 billion, several justices suggested that military and diplomatic assets should be off-limits, which would narrow the scope of the ruling.

Depending on how a ruling along those lines is written, it could make it harder for NML to enforce the court judgments it has won. Buenos Aires-based economist Guillermo Nielsen, Argentina's finance secretary from 2002 to 2005, indicated that the government has few commercial assets around the world.

"There is effectively nothing," he said.

A separate and more high-profile case, in which Argentina is challenging a court judgment ordering it to pay $1.33 billion to NML and other so-called holdout bond investors or face a potential default if it refuses to do so, is also pending before the high court.

During Monday's argument, the nine justices gave no indication of where they stand on the bigger case. At one point, Chief Justice John Roberts made it clear to NML's lawyer, Theodore Olson, that the broader history of the litigation has no bearing on how the court will rule.

"It seems to me that context is totally irrelevant," Roberts said. "It doesn't matter what the basis of the underlying judgment is."

The narrow legal question is whether NML, a unit of billionaire hedge fund manager Paul Singer's Elliott Management Corp, could enforce subpoenas against Bank of America and Banco de la Nacion Argentina.

The South American country defaulted on its debt in 2002 and has been in a legal battle with bondholders led by hedge funds NML and Aurelius Capital Management, which rejected two debt restructuring offers. Argentina argues the funds bought most of the debt at a deep discount after the default and sought to thwart the country's efforts to restructure.

Argentina faces falling dollar reserves, a weak economy and high inflation, which has prompted President Cristina Fernandez to reverse some of her more populist policies.

While the majority of justices seemed sympathetic to the idea of NML being able to seek information, several signaled a willingness to limit it to commercial assets.

Roberts described what NML was seeking as "pretty extraordinary" because it could lead to creditors finding out "how many jet fighters Argentina happens to have."

Probing further on the question of what assets creditors could seek information on, Justice Stephen Breyer playfully cited "marvelous Argentine beef" in a butcher's shop in Italy as an example of the type of commercial property that NML could pursue.

Justice Antonin Scalia appeared most hostile to Argentina. He questioned why other nations that could benefit from a ruling in Argentina's favor had not filed court papers in support.

"Maybe Argentina owes them money as well," he said, prompting laughter in the courtroom.

Justice Ruth Bader Ginsburg seemed more sympathetic to Argentina's position. She made reference to creditors who had held about 93 percent of Argentina's bonds and agreed to the 2005 and 2010 debt swaps, accepting between 25 cents and 29 cents on the dollar.

A ruling is due by the end of June.

The case is Argentina v. NML Capital, U.S. Supreme Court, 12-842

(Additional reporting by Hugh Bronstein in Buenos Aires; Editing by Will Dunham and Grant McCool)

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Comments (2)
GermanHoldout wrote:
How long we have to wait?

Argentina’s NIGHTMARE DEFAULT, this since 2002 ongoing HORROR must finally have an end!!

President Kirchner should end this WAR against innocent holdouts. (it lasts already longer, than the World War I and II together)

We are human beings and not scapegoat of the politics!!

President Obama should help and talk to President Kirchner to end Argentina’s Horror-Default.

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

Since 2002, Argentina has not paid a cent to the holdouts!

Argentina should be reconciled with both the IMF and with the holdouts.

Each state in the world refinances its debt on the capital markets. A return Argeniniens to the the capital markets would be welcome.

BUT before reentering the world, Argentina must end this HORROR-Default with the Holdouts!

With the money for the PBI payments (3-4 billions), Argentina could almost to half solve the holdout problem and end the Default.

Argentina clearly has 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) It is not much for the 3. largest economy in South America.

Today, the dollar debt of Argentina with private creditors amounts to only 9.5 percent of GDP, against 95.3 per cent in 2002. Other countries in the region, such as Brazil, with gross debt / GDP ratio of 67.2 percent, and more Europe-Greece 179.5, 130.6 Italy, Portugal 122.3, 93.6 Britain, France 92.7, 91.8 and Germany 80.4 Spain – and the United States, with 108.1, are way up from Argentina, in the same record of the IMF in 2013 to 44 percent figure.

It is shameful, that countries such as Mexico, Brazil, France and a Nobel laureate Joseph Stiglitz support this incredible injustice of the non-payment of debts to the holdouts with hair-raising justifications in their amicus briefs.

In the “Pari Passu” issue the Holdouts are 100% right! There is nothing to discuss. In the bond contracts “Pari Passu” is clear defined. Also, in the bond contracts Argentina has explicitly waived its sovereign immunity.
It would be helpful, if the US Supreme Court rejected Argentina’s unjustified appeal.

The argument:->
“If the U.S. courts uphold the Holdout’s position, as negative consequences Sovereign debt restructurings will be much more difficult in the future.”
IS NOT TRUE because,
Any country that wants to restructure so that Argentina is trying to do may simply refuse to put equal treatment clauses in their contracts. And, after Argentina’s 2001 Default 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 vote against the restructuring.
Also the new swapped bonds of the “exchanged bondholders“ include this CAC. It means that in the future Argentina can swap with a majority of 75%.

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

Also the Argument-> “The country has said that forcing it to pay the defaulted bondholders immediately would expose it to $43 billion in additional claims it can’t pay and trigger a new default. ”
IS NOT TRUE, because the clause “Rights Upon Future Offers (RUFO)” ends in December 2014. That means, that from 01/01/2015 Argentina can make a better offer to the Holdouts, than it made in 2005 and 2010. Hence, additional Claims from Exchange bondholders are completely ruled out.

Argentina should rather sit down and negotiate an acceptable solution with the Holdouts!

Argentina should solve not only the Repsol and Paris Club but also the Holdout Problem!

We are in contrast to Repsol and Paris Club human beings!
To reach an agreement with the holdouts would probably take only few hours…

The cause of Argentina’s decline is the largest financial crime in world history, this since 2002 ongoing HORROR-Default.

U.S. Senators Rubio and Menendez meant under undemocratic Argentina, that Argentina does not pay its debt.

Non-payment of debt since 2002 to the Holdouts, breaching of bond-contracts are criminal and are highly undemocratic!

Argentina as a great country must reenter the world, as also Greece now made!

For reentering the world, Argentina must end the Default with the Holdouts!

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 higher. That is why we cannot accept similar offers as they were in 2005 and 2010.
Most of the “Exchange Bondholders” were “after default buyer”, who have bought their bonds at an average of 30% or even lower. That is why they have accepted the offers in 2005 or 2010.

The “RUFO” clause (Rights Upon Future Offers) expires as of 12/31/2014. That means, that from 01/01/2015 Argentina can make a better offer to the Holdouts, than it made in 2005 and 2010.

If Argentina and the holdouts made NOW A BINDING AGREEMENT with respect to the “time after” (end of the “Rights Upon Future Offers (RUFO) clause in December
2014), seizure risks and a technical Default would be immediately averted. Argentina could immediately return to the capital market and thus Argentina could refinance the payments to the holdouts, without using reserves.

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

A swap from the defaulted old bonds to new bonds is unacceptable also for tax reasons.
In Germany, for example, if you accepted a swap, then you would have to pay for the new bonds 30% extra tax…

Following simple conditions might be acceptable for the Holdouts on the basis of the old bonds.(Without swapping from old to new bonds, also because of tax reason)

Argentina (or investment banks, funds) should make a buyback offer of about 130-140% ( for owned capital+ accrued interest between 2002-2015) for the holdouts.

(Argentina owns until now about 230%, a cash buyback of 130-140% would so mean for Argentina already a debt relief of about 100%)

Apr 21, 2014 12:42pm EDT  --  Report as abuse
Tindione wrote:
if you are a retail holdout, you’ve been ripped off by YOUR bank, which sold you debt bonds that were not intended for public buyers, you are barking at the wrong tree.

Apr 21, 2014 3:40pm EDT  --  Report as abuse
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