November 22, 2014
Changing jurisdiction of bonds, still up in the air
The holdout hedge funds yesterday insisted that Argentina is planning a swap of restructured bondholders’ debt to remove such securities from US jurisdiction. The claims were vehemently denied by the country’s lawyers but at this point in the long legal battle that stemmed from the record-breaking 2001 default, the country really has two options: speed up its suggested bid to bring the bonds to Buenos Aires or meet with the holdouts face to face to discuss how and when to put the matter to bed.
Carmine Boccuzzi of Cleary Gottlieb Steen & Hamilton, which represents Argentina, indicated that President Cristina Fernández de Kirchner’s administration will send a delegation to begin negotiations, insisting the debt swap is only an option that is being analyzed.
In what is perhaps a reflection of the complicated state of affairs, the government’s signals have been far from clear, saying at one point that the US judiciary’s final ruling would be met, while on Tuesday Economy Minister Axel Kicillof said only restructured creditors would be paid.
Robert Cohen of the law firm Dechert, which represents NML Capital, confirmed that the payment of US$900 million due to restructured bondholders on June 30, can be extended, therefore allowing more time for the parties to sit down and talk.
The payment deadline could be pushed back to July 30, Cohen said, confirming that the immediate aim of Argentina’s lawyers, to make time for negotiations, was viable.
Griesa could technically even order another stay, or injunction, to replace the one that was lifted yesterday, if negotiations were to begin in earnest. The stay shielded Argentina from having to pay the holdouts as well as restructured creditors.
Elliott Management Corp. did not respond to the Herald’s request for comment, but a source familiar with the company told Bloomberg that the hedge fund could consider taking bonds as payment in exchange for the defaulted debt.
For now, it seems negotiation is the most likely outcome, as the alternative of relocating the securities of the 92 percent of investors who took part in the 2005 and 2010 swaps would imply being in contempt of the US judiciary, according to Judge Thomas Griesa. And there is little evidence to suggest most investors would even take Argentina up on an eventual offer to switch jurisdictions.
“It’s hard to imagine a world where enough (restructured bondholders) would accept the change in jurisdiction, because we’re talking about billions of dollars,” Moody’s senior sovereign risk analyst Gabriel Torres told the Herald.
“There are two options if they don’t pay the holdouts — to default or try to avoid the terms of the injunction by paying outside (the US),” said Richard Samp, Chief Counsel of the Washington Legal Foundation, adding that a clause in the securities — the Rights Upon Future Offers, or RUFO — says that the government cannot voluntarily offer better terms to bondholders than what it offered in the 2005 and 2010 swap until the end of the year.
“Negotiation is possible... they would probably be willing to resolve the issue without full repayment as long as it’s better than the previous restructuring offers, but they have everything in their favour,” he concluded.
Debt expert Ignacio Frechere agreed: “This is the scenario the ‘vultures’ have always been hoping for, pushing Argentina against the wall to force negotiations.”
Market sources told the Herald that there were rumours that Argentina could be willing to issue an initial payment of US$300 million as a sign of goodwill to wait until the RUFO clause expires in 2014 to then issue bonds, thus avoiding litigation by restructured creditors.
There is currently debate in the markets about whether the RUFO clause would even be relevant because the country could argue that any better offer was forced due to Griesa’s ruling.
“Negotiating and the swap are not complementary measures, it’s either one or the other, but without concrete news, it’s hard to speculate further,” Sebastián Biozzo, of Standard & Poor’s told the Herald.