November 23, 2014
Gov’t upholds willingness to keep paying
for the Herald
In an 18-page petitioner’s reply brief filed in the United States Supreme Court, the government laid its cards on the table, asking the tribunal that the pivotal pari passu case involving holdout bondholders demanding full repayment of debt from the 2001 crisis — namely Paul Singer’s Elliot NML Capital — be reviewed and reversed by the New York Court of Appeals.
The government argued that “New York’s highest court, not the Second Circuit, should have the final say regarding whether to disrupt settled market understandings of this widespread provision.”
Cleary Gottlieb Steen & Hamilton, the law firm that represents Argentina, held out as long as possible to issue the brief.
Briefs of amici curiae, or documents in support of either party, were filed from various parties, including the governments of Mexico, France, and Brazil, which suported Argentina’s position. On May 8, five former judges and one of George W. Bush’s former justice secretaries, Michael B. Mukasey, put forth an amicus in favour of NML Capital, which the government’s brief addressed.
The pari passu clause, meaning the equal treatment of all bondholders over time, has been interpreted by the lower courts as requiring Argentina to pay NML Capital all that it is owed — some US$1.33 billion — if any payment is made to the bondholders that accepted significant haircuts in their debts as part of the 2005 and 2010 restructurings.
In 2005 and 2010, 92 percent of bondholders’ debt was restructured, with NML Capital falling under the eight percent that persist in huffing and puffing for the full sum.
The full sum, Argentina contends, would actually rise to US$15 billion due to the interests accrued while restructured bondholders have been paid back.
Citing several of the amici briefs in its favour, the document, to which the Herald had access, outlines the “utmost importance to the international order and global impact” of the ruling, as it would set a precedent for debt issuance and restructuring in the future.
The government’s lawyers cite Nobel laureate and economist Josef Stiglitz in arguing that “because no sovereign bankruptcy regime exists, voluntarily restructuring is critical for nations in crisis to obtain some fresh start while also protecting creditors.”
There are three options for the Supreme Court: to hear the case, to reject the case or ask the opinion of Attorney General Eric Holder, Marco Schnabl, from Skadden, Arps, Slate, Meagher & Flom, which represented the Puente brokerage investment banking company in its amicus submission, told the Herald. Puente was the only Argentine firm that filed an amicus brief in favour of the country.
The latter option would kick the ball forward, giving the government more time to assess its options and accomodate financially in case of a negative ruling.
If the court agrees to hear the case, “we can expect oral arguments in the Supreme Court in December or November, in general terms, and a ruling in March, 2015,” he said.
In the third scenario, “I would expect the attorney general to pronounce himself in November or December, and the court would decide on reviewing the case or not in January or February, 2015. If it grants the review, statements in court would come in November or December of 2015, and a ruling in 2016,” Schnabl said.
There is also a fourth option, that the Supreme Court will send the case back to a lower court if justices believe that a parallel case on whether holdout hedge funds can access information on Argentine assets affects the pari passu decision. That otucome is seen as unlikely.
Willing to pay
Regarding the argument by holdouts that Argentina would not pay in case of an adverse ruling, the brief retorted: “That claim is wrong.”
“To be clear, absent relief Argentina will comply with the orders under review,” the lawyers wrote, warning that “given Argentina’s inability to pay the holdouts in full — what would amount to US$15 billion — while also servicing its performing debts, compliance will force the country to face a serious and imminent risk of default, with grave ramifications for Argentina, the exchange bondholders, and the capital markets.”
This may signal a willingness by the government to face a default if the opinon is not reversed.
World Cup fever
According to SCOTUSblog, a reliable US news portal, the case has been “distributed for conference” on June 12, meaning that a decision could be made public that same day or the following Monday.
The date is unverifable, Schnabl told the Herald, but “a decision will be divulged by mid-June or the end of June, because the court almost always clears up its schedule before breaking up for the summer.”
There is another conference scheduled for June 26, meaning that the case’s treatment on June 12 is not a given.
In the unlikely case of no developments by July 1, both parties would have to wait until the start of the next term for the court in October. No one should hold their breath.
“The supreme court reviews some 1.5 percent of all cases brought before it. Even if we assumed that the Argentine case is 10 times as ‘interesting’ to the justices than the average case, this only raises the probability of review to 15 percent, which still makes the odds of a review very unlikely,” Schnabl concluded.@franma1990