UPDATE 3-U.S. court signals narrow bondholders win in Argentina subpoena case

Mon Apr 21, 2014 4:12pm EDT

(Adds ex-Argentina finance secretary comment paragraphs 3-4 and context, paragraph 10)

By Lawrence Hurley

WASHINGTON, April 21 (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 (1)
GermanHoldout wrote:
How long do we have to still wait?

It would be helpful, if the US Supreme Court rejected ASAP Argentina’s unjustified appeal.

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!

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!

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

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 12:58pm EDT  --  Report as abuse
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