(Adds dropped word in paragraph 8)
By Davide Scigliuzzo
NEW YORK, Aug 6 (IFR) - The possibility of a wave of “me-too” claims against Argentina is threatening to scupper any of the relief the sovereign might eventually gain from ongoing talks between international banks and litigant investors.
A group of so-called “me-too” holdout investors have already asked a US judge to grant them equal treatment amid hopes of a potential deal to allow international banks to buy defaulted debt from hedge funds led by Elliot Capital Management and Aurelius Capital.
Holdout bondholders represented by law firm Proskauer on Wednesday asked US district court judge Thomas Griesa that their clients be granted formal pari passu protection, according to a letter seen by IFR. Those international and Argentine investors have potential claims in excess of US$750m, including interest.
“Not only did the (Argentine) Republic make a mockery of the court-ordered settlement talks, but it now appears to be brokering a back door settlement only with bondholders that have formal pari passu injunctions,” Jennifer R. Scullion, a partner at the firm, wrote to Griesa.
Claims from me-too holdouts - bondholders who did not accept the terms of the 2005 and 2010 restructuring but are not covered by the injunction that effectively put Argentina in default on July 30 - could represent a major setback in Argentina’s efforts to put its debt woes behind it.
Even if a deal with the main litigants is reached in the near future, this would not prevent me-too claimants from obtaining new injunctions prohibiting Argentina from making payments on its restructured bonds.
“Griesa could grant a stay for the (main) plaintiffs, but conceivably grant a new injunction to others,” said a lawyer familiar with the case.
Negotiations to make Elliot and other litigant investors whole may prove fruitful and encourage Judge Griesa to unblock payments to holders of restructured debt, but filings from other holdouts could put Argentina back to square one.
“The so-called ‘me toos’ could quickly make similar demands and thus make the problem come back,” wrote Jan Dehn, head of research at Ashmore Investment Management.
“The combined claims of the plaintiff plus the ‘me toos’ is about US$15bn, which is more than half of Argentina’s FX reserves.”
Judge Griesa had refrained from granting similar me-too injunctions prior to Argentina’s default, but Proskauer is hoping that recent developments in the case will make the judge reach a different conclusion.
Reporting by Davide Scigliuzzo; Editing by Paul Kilby and Marc Carnegie