December 12, 2017
Thursday, March 27, 2014

Brokerage calls for ‘vulture’ jurisdiction change

The US Supreme Court is seen from within a car as snow melts on the window.
The US Supreme Court is seen from within a car as snow melts on the window.
The US Supreme Court is seen from within a car as snow melts on the window.
By Francisco Aldaya
for the Herald

Puente Hermanos is the only local entity to file an amicus brief supporting the country

Brokerage and investment banking firm Puente Hermanos, the only Argentine entity to submit an amicus brief supporting the country in its litigation against hedge funds that refused to restructure their sovereign debt, is requesting the United States’ eight justices send the case to New York state’s Supreme Court.

One of ten amici curiae filed, which include briefs from France, Mexico and Brazil, Puente’s, filed jointly with the Argentine-American Chamber of Commerce, stands out due to its jurisdictional focus, which implicitly seeks to eliminate the chance of the US Supreme Court deciding against hearing the case on Argentina’s alleged non-compliance with the pari passu clause — determining that all debt must be treated equally.

“We have the responsibility of defending our clients, as the main distributor and structurer of debt in the country, but (an adverse ruling) would not just affect bondholders,” said Puente CEO Federico Tomasevich at a news conference yesterday in downtown Buenos Aires, emphasizing that although dialogue exists with the Fernández de Kirchner administration’s legal representation, the initiative was entirely funded by the company.

In 2012, Puente had already filed brief in support of the government against the hedge fund President Cristina Fernández de Kirchner likes to call “vultures” before the Court of Appeals for the Second Circuit before it dealt with the appeal against the ruling by Judge Thomas Griesa, of the District Court for the Southern District of New York.

Griesa ruled in favour of hedge funds led by Paul Singer’s Elliot Management, which are seeking full repayment on defaulted bonds from the 2002 default. If they succeed, Argentina could be flooded by lawsuits from bondholders back for more cash. Yet for now, the market appears to be betting on the contrary.

“If you look at the prices of defaulted bonds, they went from a floor of US$35 to US$55 today, which indicates that the market is expecting an imminent final accord with bondholders who did not take up the restructuring offer,” said Tomasevich.

The factor that differentiates Puente’s brief from that of other amici is the request for a change in jurisdiction.

New York state’s Supreme Court is the “natural tribunal to rule on a matter that is clearly of a contractual nature, and also to take responsibility for the consequences a ruling might have on jurisprudence in the state ... and on all sovereign debt issuance throughout the world.”

Upon an adverse ruling for Argentina, the law system of the state of New York “would be held responsible for impeding the restructuring of sovereign debt,” Schnabel sentenced.

Asked by the Herald at yesterday’s news conference whether the proposal implies moving the case to a lower court, Schnabel responded negatively, explaining that a ruling by the New York state’s Supreme Court would be final and not appealable.

The lawyer was also perplexed by the absence of amici briefs from other Argentine companies, telling journalists present: “You tell me when you have an answer to that.”


Regarding how much longer the Supreme Court will take to decide whether to hear, dismiss or defer the case as Puente has proposed, Schabel said “perhaps before June; otherwise, we will have to wait until after the US summer holidays,” with judicial activity resuming in October.

The partner seemingly brushed off as a “minor detail” the relevance of the Rights Upon Future Offers (RUFO) clause attached to sovereign bonds, which states that until January 1, 2015, the government cannot voluntarily make better offers and cannot reach extrajudicial accords with holdouts under better terms than the 93 percent who restructured their bonds.

In November, lawyer Eugenio Bruno had told the Herald the RUFO clause could prove important in pushing holdouts to settle, but the likelihood of a decision from the Supreme Court before then reduces the likelihood of such an outcome.

Grounds for state jurisdiction

As the pari passu clause attached to sovereign bonds issued in the United States pertains to New York state law, Puente contends the state’s highest tribunal should have input in “an important unsettled state law having the potential of crucially affecting the state’s public policy and world-wide standing in financial markets.”

The company’s legal team asked the federal Supreme Court to certify — an infrequently used mechanism enabling, in part, the instruction of other tribunals — the case back to the New York Court of Appeals so as to reach the state’s Supreme Court from there.

Schnabel said there was no risk of the latter rejecting the case if requested to do so by the US justices.

Interpretting equality

Jurisdiction aside, on the underlying and definitive issue of the pari passu Puente argues along the lines of the government’s petition for writ of certiorari — for the Supreme Court to hear its appeal — and extensively reiterated in the nine other amici in its favour: that Judge Griesa’s interpretation of the clause as implying that “holdouts” must be paid the full and original amount owed to them (US$1.33 billion) “when and if it (the government) pays bondholders that took up offers to restructure their debt in 2005 and 2010.

“By reading this ‘ratable payment’ remedy into the pari passu clause, the lower courts misinterpreted plain language and overlooked long-accepted understanding ... (of the clause) as guaranteeing equality of legal rights, not guaranteeing simultaneous payment”, Puente’s amicus reads.

Uncle Sam stays neutral

In the aftermath of US Secretary of State John Kerry’s call last week for Argentina to honour its debt and rejection of potential support for the country in court, Latin American powerhouses Brazil and Mexico along with France were the states that opted to stand by the Fernández de Kirchner administration.

Lacking US support will have come as a blow, but Argentina also counts on amici from Fintica, Eurobondholders, Economic Nobel Prize winner Joseph Stiglitz, Caja de Valores and Euroclea.

Holdout funds’ stance is weakened by undermining future debt restructuring, Schnabel emphasized, expressing confidence that their ability to embargo real money is practically null, while attempts to seize assets such as the Libertad frigate have ultimately proven futile, which “means they are losing money” in their pursuit.


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