| BUENOS AIRES
BUENOS AIRES Aug 22 Argentina's proposed debt
restructuring plan, designed to sidestep U.S. court rulings that
led to the country's default in July, faces massive legal and
logistical hurdles that mean it may never get off the ground,
Left-leaning President Cristina Fernandez unveiled on
Tuesday measures that would see the South American country make
payments on debts held under foreign legislation in Argentina
and push bondholders to bring their notes under Argentine law.
The U.S. judge at the centre of its debt battle with U.S.
investment funds, who spurned restructured debt after the
country's record 2002 default and are suing Argentine for face
value, said the plan violated his court's past rulings.
While the draft bill is likely to enjoy smooth passage
through a Congress dominated by political allies of Fernandez,
Argentina faces a far tougher time persuading investors,
financial institutions and legal teams that it is solid.
Huge question marks surround how Argentina will locate all
holders of its debt across 15 separate bond series. Financial
intermediaries with a U.S. footprint would need to collaborate
in the process but in doing so they would risk being in breach
of U.S. court rulings.
There are also serious doubts about the government's
proposal to replace trustee intermediary Bank of New York Mellon
(BONY) with local bank Nacion Fideicomisos, a unit of
state-controlled Banco Nacion. The move is an attempt to resume
interest payments to holders of exchanged debt after they were
blocked by District Judge Thomas Griesa, prompting the default.
"It doesn't seem like a strategy that is capable of being
implemented in a grand scale," said Marco Schnabl of law firm
Skadden, Arps, Slate, Meagher & Flom.
Even so, legal experts including Schnabl are cautious about
writing off the debt plan altogether as Argentina has previously
pulled off unexpected debt deals and unorthodox economic
If the plan does unravel, it will either force Argentina
back to the negotiating table in a weakened position or, if the
government refuses more talks, leave the country mired in a
messy default until presidential elections next year. Fernandez
cannot run again.
Under the terms of the existing contract governing the bond
swaps of 2005 and 2010, which 92.4 percent of investors accepted
at huge writedowns, the trustee must hold a combined capital and
surplus of at least $50 million.
Any trustee must also have a Corporate Trust Office in New
York's Manhattan borough and be conducting business under the
laws of the United States.
Nacion Fideicomisos' legal address is in central Buenos
Aires and its website shows no indication of a presence in New
York. As of December 31, 2013, its net worth was $16 million
according to its latest balance sheet.
The bank did not immediately reply to Reuters' questions
seeking comment on whether it met both criteria.
"All they seem to be doing is establishing some mythical
fiduciary account at Banco Nacion where it can send payments
because the country does not want to send them to the Bank of
New York Mellon," said lawyer Antonia Stolper at Shearman &
Griesa ordered Argentina not to carry out the proposed
restructuring and ruled any entity assisting Argentina in
avoiding his order would also be in violation of his court.
That means Argentina may have trouble identifying its
bondholders, as clearing houses including Clearstream Banking AG
and Euroclear or other entities may be reluctant to divulge any
"Argentina doesn't have the faintest idea who the beneficial
owners are," said Schnabl. "They change on a regular basis when
the bonds are traded and ownership is not registered anywhere
other than the immediate place which holds the bonds."
The bill also pushes bondholders to change the jurisdiction
under which their Argentine securities fall and seeks to assure
investors their payments would not be subject to the stringent
capital controls Argentines and foreign firms face.
That would be complicated but might be possible "in jerry
rig fashion", said Stopler.
Financial intermediaries with U.S. footprints were unlikely
to collaborate in the process making it difficult to carry out
any steps that were needed to first verify and then extinguish
restructured bonds governed by the current indenture, JP Morgan
said in a briefing note to clients.
"The proposal is also a poor option because restructured
bondholders have to be willing to accept local custodian and
capital control risk," JP Morgan wrote.
(Editing by Richard Lough and Andrew Hay)