November 23, 2014
‘Moving bonds’ jurisdiction is beyond unlikely’
The Herald speaks with Georgetown University law professor Anna Gelpern
As the government faces a new meeting with “special master” Daniel Pollack today, time is running out to reach an agreement before the 30-day grace period ends. Tomorrow will be the last day to pay US$1.33 billion, plus interest, to holdout holders of defaulted debt. But, as the money has already been sent, experts doubt whether it will be a default or not.
In an interview with the Herald, law professor at Georgetown University and fellow at the Peterson Institute Anna Gelpern, who has been following the case since the start, said there’s still time for an agreement and that negotiations will now be focused on the possibility of a new stay. Gelpern also dismissed the possibility of moving jurisdiction to Buenos Aires and warned of the effect of Griesa’s decision on other debt restructuring processes
Are you hopeful that an agreement between the government and the holdouts can still be achieved, despite the short window of time?
There’s always time for something, the question is for what. Right now there’s time for an agreement to extend the stay but only if one of the creditors requests the stay. But they wouldn’t do it for free and they would want Argentina to put money on escrow. Griesa could grant it but probably only if the creditors ask for that since Argentina has asked for it before and he said no. So the question is if creditors will ask for one and what are their conditions.
What would be a reasonable solution for Argentina in this conflict?
In the near term, they need the stay. In the long term, they need a global settlement with everybody and not just NML. Because if they do an agreement now only with them, the rest could start asking for more money. The solution has to be a global settlement. But it looks that settlements would have to come after December 31 so the RUFO clause isn’t triggered. A global settlement would be a securities offering but that takes time to achieve. You can have an agreement in principal very quickly but gathering all the people and doing the mechanics would take until the end of the year.
Can the RUFO clause be triggered if the government pays the holdouts?
In the end, all the lawsuits on the RUFO clause are likely to sink. The problem is we don’t have until the end. Argentina doesn’t have the time. There are many reasons that these lawsuits should fail. The only thing that matters is what constricts the decision-makers and the RUFO clause constrict them.
Judge Griesa has been criticized lately for his performance during the case. How do you rate his work?
I’m not in a position to evaluate Judge Griesa. I am not a fan of his decision because of its externalities. But he has a very difficult problem as he is dealing with an immune sovereign debtor and a very determined creditor. There’s no good solution to this. You can argue with some of the things he says but there’s no clean solution to the problem with creditors. The point here is that there’s no good judicial solution to a sovereign debt default today.
Do you see future effects on other debt restructuring processes due to Griesa’s ruling?
I agree it could affect future debt restructuring. Argentina, NML and Judge Griesa may all be unique but that doesn’t matter. The law that they make together applies to everybody. It affects the law going forward. The possibility to avoid that effect is to change contracts but that would take a decade.
If an agreement isn’t reached next Wednesday, will the country default?
I think it’s technically a default. If you read the contract the government signed with its creditors, a default is achieved if they don’t get their money. But that doesn’t mean some courts could decide different and not see it as a default.
Would you say its better to default than to the RUFO clause be triggered?
I don’t think it matters what I think. What’s important are the consequences for the decision makers - it matters what Argentine officials think.