December 20, 2014
New York judge allows payment to bondholders based in Europe
After heading a new hearing between the government and the holdouts, Judge Thomas Griesa issued a clarification order yesterday authorizing banks Euroclear and Cleastream to mame a one-off payment to debt holders who have Argentine dollar bonds held under local law payable in Europe, which form part of the titles restructured following the default of 2001.
Griesa’s order, which wasn’t fully disclosed at press time, comes after his previous decision this week to authorize the Citigroup bank to process payment on Argentine dollar bonds held under local law. Citigroup, Euroclear and Clearstream payments would reportedly total US$85 million, sources told the Herald yesterday.
Nevertheless, Griesa’s specific order didn’t include other financial institutions like the Bank of New York (BoNY), which continue with their funds frozen without a clear indication as to what to do with them. BoNY has asked repeatedly to Griesa at hearings and in writing for instructions, but he hasn’t given any so far.
Griesa said yesterday Argentina cannot turn its back on negotiations with holdout creditors after defaulting on its sovereign debt, just as the country’s failure to service a June interest payment was declared a “credit event.” In a stern tone, Griesa in New York slammed the decision by Argentina to defy his order that it pay in full holdout investors suing it and instead default on US$29 billion in debt.
“Nothing that has happened this week has removed the necessity of working out a settlement,” Griesa said. “The debts weren’t extinguished. There’s no bankruptcy, no insolvency proceedings. The debts are still there.”
The veteran judge has been at the centre of Argentina’s drawn-out fight against the New York hedge funds suing it for full payment on bonds they bought on the cheap following the country’s record 2002 default on $100 billion in debt.
Griesa told both sides to continue working with mediator Daniel Pollack, a lawyer one senior Argentine government minister had dubbed “incompetent” a day earlier. Griesa chided Argentina for making public statements he characterized as misleading.
Argentina’s lead lawyer told the judge the Argentine government had no confidence in Pollack after he released a statement after negotiations broke down saying the case had become “highly politicized.”
“The Republic of Argentina believes ... it was harmful and prejudicial to the republic and the impact on the market,” lawyer Jonathan Blackman said in an exchange that prompted Griesa to tell the hearing that everyone should “cool down” about ideas of mistrust.
At the same time, the Economy Ministry pointed fingers at Griesa because the hearing “solved nothing and maintains the status quo.” The ministry statement said that Pollack was “partial for the ‘vulture funds’ and exceeding his atributions.”
“Griesa wants to extort Argentina to pay ‘vulture funds’ what they want, even though he knows that doing that would be in violation of the RUFO clause,” the press release said. “He has favoured ‘vulture funds’ again by calling a new hearing to solve nothing about the case. “
Not a default
The Argentine government maintains it has not defaulted because it made a required interest payment to a bank intermediary on one of its bonds. But Griesa blocked that deposit in June, saying it violated his ruling that Argentina settle its dispute with holdout investors first. As a result, holders of exchanged Argentine bonds did not receive the interest coupon payment by a July 30 deadline.
Before Friday’s hearing, Cabinet Chief Jorge Capitanich had said he expected nothing favourable to come from Griesa’s hearing. It has previously called the federal judge an “agent” of the New York hedge funds.
Argentina had argued it needed to await the December 31 expiration of a legal clause barring it from paying under better terms to the holdouts than those accepted by restructured debt-holders before changing its negotiating terms, said Ander Faergemann, senior emerging debt fund manager at PineBridge Investments in London.
Asked how painful the default would be to the shrinking economy, Rune Hejrskov at Jyske Invest said: “It really depends if it’s a ’default lite’ (quick settlement) or a hard default. Either way, there will be a toll on the macro backdrop.”
Fund managers have generally said that the market so far has priced in an agreement within the next six months. However, some have said the risk that bondholders would accelerate their demands on the principal value and accrued interest would grow if expectations of a deal waned.
“I would not be surprised, if this drags on longer, which would complicate the picture,” UBS’s Mariscal said when asked if there would be an acceleration.
Herald with Reuters