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October 20, 2014
Wednesday, July 23, 2014

Griesa orders Argentina, creditors to meet until deal is reached

Mediator Daniel Pollack leaves federal court in New York yesterday. A federal judge in New York ordered around-the-clock negotiations aimed at averting a second debt default by Argentina in 13 years. There is a July 30 deadline for Argentina to pay some US$1.5 billion owed to US bondholders.
With stay rejected again, gov’t, NML, Aurelius will sit down together for first time today

New York District Judge Thomas Griesa yesterday denied Argentina’s third formal stay request and ordered the country and holdout investors to meet with court-appointed mediator Daniel Pollack to negotiate until a settlement is reached, as time runs short before a potential default.

If both parties show up, today will be the first time Argentina’s and the holdouts’ lawyers sit down at the same table to talk to each other, having only met with Pollack separately.

NML issued a statement claiming “this matter could be resolved quickly if Argentina would join us in settlement discussions.”

Hours later, while an emergency meeting called by President Cristina Fernández at Government House took place, the Economy Ministry responded with its own statement, saying Griesa had “not resolved anything,” and that the “vultures keep threatening Argentina.”

Kicillof last night decided to send a ministerial delegation to New York, rather than making the trip to see Pollack himself.

The Herald anticipated in yesterday’s paper that the judge would only be likely to grant a stay — to allow payments to restructured bondholders to be distributed despite not simultaneously paying holdouts — if negotiations were deemed to have progressed the day before the July 30 end to the grace period to make repayment effective.

The government slammed Griesa in its statement last night for “uttering a single word on the RUFO clause, which is included on the prospectus of every single” of the bonds in question, and for not resolving the issue of the frozen deposits, for which “he called this meeting himself.”

The “vultures uphold the application of the RUFO clause is impossible. That’s why Argentina requested Judge Griesa make the vulture funds provide insurance to cover the risk of an eventual application of the RUFO,” a request that was ignored, the statement emphasized.

“We are prepared to do as the judge asked and meet continuously with Argentina and the Special Master to resolve this dispute. We are confident this matter could be resolved quickly if Argentina would join us in settlement discussions,” NML said in a statement in the evening.

Nonetheless, if Argentina’s lawyers’ claim that reaching an agreement before the deadline “is impossible” turns out to be true rather than part of a poker face, a technical default could be only a week away.

Several parties in Argentina’s long-running legal battle appeared before Griesa at yesterday’s hearing, with the judge hearing a range of requests over how to enforce orders requiring payment of US$1.33 billion, plus interest, to holdout holders of defaulted debt.

The judicial rulings have forced it to negotiate with holdout investors who declined to restructure their bonds after the country defaulted on about US$100 billion in 2001-2002. The country has until July 30 to settle the case or seemingly face declaring a new default.

Capitanich reiterated that fulfilling Griesa’s ruling meant increasing the country’s foreign debt from US$120 billion to US$500 billion, and would also imply exposure of the current authorities to domestic criminal and civil lawsuits due to their responsibility to resolve the issue.

Same old story

Argentina has argued that if the judge did not stay his ruling ordering payment, a settlement is not possible. The country has said that if it pays holdouts, it opens the door to additional liability that could cost it billions. But Griesa said a stay was not necessary and that a deal was realistic.

“In my view, every single problem you’ve described is susceptible to be handled in a settlement,” he said. “If we don’t, there will be a default, and that is the worst thing. That is about the worst thing I can envision. I don’t want that to happen. People will be hurt by that, real hurt. Not vultures being hurt, but real people.”

The judge thus reaffirmed a stay was not necessary, as there are “ways to do something to avoid default.”

Griesa insisted that Argentina’s statements “have been incendiary and unfortunate,” emphasizing “rulings are rulings” and that the country “refuses to fulfill it,” but making no reference to the hedge funds accusations against the government of ill will.

‘Round the clock talks

Griesa ordered the parties to meet with Daniel Pollack, a New York lawyer appointed to oversee settlement talks, tomorrow at 11am Argentine time, and to meet “continuously until a settlement is reached.”

But he added: “I don’t mean anything absurd. I don’t mean that the finance minister of the Republic of Argentina has to personally be in New York ‘round the clock, of course. But he undoubtedly has staff.”

Jonathan Blackman, a lawyer representing Argentina, said a settlement “simply can’t be done by the end of this month” even with continuous negotiations. The country asked Griesa to put a hold on his order requiring payment to both holdouts and negotiated bondholders so the talks can continue without an “artificial pressure cooker.”

“We want to negotiate a settlement with everyone, but to do that requires movement,” Blackman said.

Argentina claims the Rights Upon Future Offers (RUFO) clause means it cannot pay the holdouts, who are led by Elliott Management’s NML Capital Ltd and Aurelius Capital Management, before 2015, as doing so would open it up to as much as US$15 billion in claims from other investors and further strain its financial condition.

“The simple fact is that Argentina’s leaders have had no interest in negotiating — not now, and not during the two and one-half years a stay was in place,” Aurelius said in a statement before the hearing yesterday. “They would rather gamble with the livelihoods of the Argentine people than sit down and reach a deal.”

The battle continues even as Kicillof has reached agreements with other creditors in an effort to rehabilitate its reputation in international capital markets.

“I think that the order to negotiate 24/7 is misplaced,” Carlos Abadi, the chief executive officer of New York-based investment bank ACGM Inc told Bloomberg after the hearing. Abadi said the parties could have agreed to jointly request a delay that would allow Argentina to avoid defaulting while they work toward settlement. Abadi said a default would decrease the value of the holdouts’ claims.

Earlier in the morning before the court meeting, Cabinet Chief Jorge Capitanich said that holdouts don’t accept the existence of risks in violating the RUFO clause, challenging them to write out a warranty document as insurance for talks to progress.

No defrosting for frozen US$539M

A lawyer for Aurelius, Edward Friedman, meanwhile urged him to reconsider part of a decision last month allowing Citigroup Inc to process payments Argentina made for bonds governed by the country’s local laws. Friedman said payments should not be allowed on all US dollar-denominated bonds.

The judge also seemed surprised when he was told by plaintiffs’ attorney Edward A. Friedman that Argentina had transferred US$200 million to US$300 million more than previously thought at the end of June to be paid to bondholders who exchanged their bonds. He reserved decision on a request by plaintiffs to block the payments.

Bank of New York Mellon Corp asked the judge to allow it to hold onto US$539 million Argentina deposited last month for a payment to the restructured bondholders, arguing that handing the cash back to the country would open up the bank to lawsuits from both holdout and restructured creditors. Griesa previously ordered the sum returned, saying its deposit by Argentina violated his orders.

Citibank attorney Karen Wagner disputed Friedman’s description of the amount of money sent through a Citibank branch in Argentina and other financial institutions, saying the characterization of it as 25 percent of the money Argentina owed to bondholders who switched their bonds for lesser valued ones seemed inflated.

She said she did not believe the payments should be subject to the judge’s orders because they were never addressed directly in the orders and because they move through a Citibank branch in Argentina that faces severe civil, regulatory and criminal risks in Argentina if it refuses to process the payments.

Griesa yesterday issued no ruling on the Citigroup issue, and told BNY Mellon and the holdouts to see if they could reach an agreement.

Herald with Reuters, AP, DyN

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