http://www.zerohedge.com/news/2012-11-22/elliott-management-vs-argentina-round-3-showdown
Submitted by Tyler Durden on 11/22/2012 09:27 -0500
Most recently, in "Elliott Management Vs Argentina Round 2: Now It's Personal" we laid out the story of how in the ongoing legal fight between Argentina's prominent distressed debt creditor, and exchange offer holdout, Elliott Management (and to a smaller degree Aurelius), and distressed debtor Argentina, the moving pieces continue in flux, even as various US legal institutions have demanded that Argentina proceed with paying the holdouts despite the Latin American country's vocal prior refusals to do so, and most importantly, the lack of a sovereign payment enforcement mechanism. Last night, the fight escalate one more, and perhaps final time, before the Rubicon is crossed and Argentina either pays Elliott, "or else" the country proves all those whofuriously bought up Argentina CDS in the past two weeks correct, and the country redefaults on $24 billion of debt. Because asReuters reports, late last night, US District Judge Griesa overseeing the Argentina case, ordered the Latin American country to make immediate payment with a deadline for escrow account funding of December 15.
and
http://dealbreaker.com/2012/11/argentina-beset-by-pirates-snakes/
Let’s check in on Argentina. It’s a lovable mess! You can read some background here or here or here. In brief:
http://www.zerohedge.com/news/2012-11-18/argentina-ignores-us-court-decision-will-not-pay-elliott-and-holdouts
Submitted by Tyler Durden on 11/18/2012 13:18 -0500
and.........
http://www.zerohedge.com/news/2012-11-16/meanwhile-argentina
Submitted by Tyler Durden on 11/16/2012 10:50 -0500
Elliott Management Vs Argentina Round 3: The Showdown
Most recently, in "Elliott Management Vs Argentina Round 2: Now It's Personal" we laid out the story of how in the ongoing legal fight between Argentina's prominent distressed debt creditor, and exchange offer holdout, Elliott Management (and to a smaller degree Aurelius), and distressed debtor Argentina, the moving pieces continue in flux, even as various US legal institutions have demanded that Argentina proceed with paying the holdouts despite the Latin American country's vocal prior refusals to do so, and most importantly, the lack of a sovereign payment enforcement mechanism. Last night, the fight escalate one more, and perhaps final time, before the Rubicon is crossed and Argentina either pays Elliott, "or else" the country proves all those whofuriously bought up Argentina CDS in the past two weeks correct, and the country redefaults on $24 billion of debt. Because asReuters reports, late last night, US District Judge Griesa overseeing the Argentina case, ordered the Latin American country to make immediate payment with a deadline for escrow account funding of December 15.
In an ruling delivered just as the United States headed off for its Thursday Thanksgiving holiday, U.S. District Judge Thomas Griesa rejected Argentina's request to maintain his previous order halting payments to holdout investors who did not participate in two bond exchanges of defaulted sovereign debt.
The ruling is the latest development in a litigation saga that has lasted more than ten years and now appears to be favoring holdout bond investors such as Elliot Management Corp's NML Capital Ltd and Aurelius Capital Management.
If Griesa's ruling is upheld and Argentina chooses to defy him, U.S. courts could ultimately inhibit debt payments to creditors who accepted the terms of the restructuring, out of consideration for investors who rejected Argentina's terms at the time.
This would trigger a technical default on approximately $24 billion worth of debt issued in the 2005 and 2010 exchanges.
Griesa essentially circumvented the traditional appeals process and said no more delays.
Griesa wrote that he would ordinarily leave his order in place pending a ruling from the 2nd Circuit. However, he concluded this was not possible given comments from Argentine officials, including President Cristina Kirchner, that Argentina would not pay anything to the holdout bondholders."It is the view of the District Court that these threats of defiance cannot go unheeded, and that action is called for," Griesa wrote, saying the payments should be made as soon as possible.
The 2nd Circuit already upheld Griesa's Feb. 23, 2012 decision that Argentina violated equal-treatment provisions for all creditors when it chose to pay exchange bondholders and not holdout bondholders.Given that Griesa's latest decision still needs the final blessing of the 2nd Circuit, he ordered that rather than Argentina paying the plaintiffs directly, it should deposit the money in an escrow account by Dec. 15....In his ruling, Griesa said the less time Argentina was given "to devise means for evasion, the more assurance there is against such evasion.""There is no question about what is 'currently due' to plaintiffs," Griesa wrote. "The amount that is currently due is the amount of the unpaid principal, the due date of which has been accelerated, and accrued interest."
The ball is now in Argentina's court. As a reminder, Argentina made it quite clear it would not pay "one dollar to the vulture funds." The vulture funds in question, are Elliott Management and Aurelius, who are owed upward of $1.3 billion. "Argentina owes this and owes it now," Griesa said. "It should be emphasized that these are debts currently owed, not debts spaced out over future periods of time." Griesa said NML and Aurelius should be paid concurrently or ahead of exchange bondholders.
And with the coupon payment due in one month, when Argentina has to pay $3.14 billion in accrued interest, we will know in a matter of weeks whether a district court's harsh language in New York is enough to make a Treasurer in Buenos Aires shiver in fear. Somehow we doubt it. Which also means Naval Commodore of His Own Majesty's Navy Paul Singer Second Rank will soon be upgraded to First Rank once he privateers a few Argentinian subs and perhaps an aircraft carrier... if any were still in service of course.
Without going into details (read Subordination 101 for the full primer), Griesa basically crushed any hopes the exchanging bondholders had that they had received priority status by being fooled into the exchange offer and accepting a price of 30 cents on the dollar:
Griesa rejected arguments from exchange bondholders that full payment to NML and Aurelius would infringe on their rights."In accepting the exchange offers of thirty cents on the dollar, the exchange bondholders bargained for certainty and the avoidance of the burden and risk of litigating," he wrote."Moreover, it is hardly an injustice to have legal rulings which, at long last, mean that Argentina must pay the debts which it owes. After ten years of litigation this is a just result," the judge said.
What is most interesting is that Griesa for the first time threatened not only Argentina but its "accomplices" i.e., funds transferring "third party" banks, with enforcement should they selectively wire funds to one group of bondholders, but not another - the hold outs.
The 2nd Circuit has also directed Griesa to spell out precisely how his injunctions would apply to third-party banks.Among the banks is BNY Mellon, which transfers funds from Argentina to the country's bondholders. It argues that the injunction would interfere with its duties to the exchange bondholders and could cause a wider disruption to the largely automated international bank payment systems.
Griesa said BNY Mellon's arguments "miss the point" and if Argentina followed the appeals court ruling there would be "no problem" about the money ending up in the right accounts.He said that if Argentina attempted to make payments to the exchange bondholders in violation of the court's rulings, third party institutions should be "held responsible" for ensuring they are not taking steps to violate the law.
Of course, BNY has the choice to just pull out and do no more business with Argentina and its creditors. There is always the option that creditors can come in on location in Buenos Aires and collect their interest in bags with dollars signs printed on them. Or just pull an Iran, and demand payment in gold via unsupervised gold transfer pathways, such as Turkey.... or China. If and when such a circumventing route is discovered, it will be one more chip away in the dollar's reserve status.
Finally, should Argentina not make the payment in December as loudly cautioned by Griesa, wait and see just why Elliott happens to be on the ISDA determinations committee. We anticipate that ISDA will find an Argentinia event of default will have occurred within seconds of the December coupon non-payment as the country follows Hostess into Chapter 22, only this time it is really personal between Argentina and some of the wealthiest hedge funds in the world.
and
http://dealbreaker.com/2012/11/argentina-beset-by-pirates-snakes/
Let’s check in on Argentina. It’s a lovable mess! You can read some background here or here or here. In brief:- Argentina had some Old Bonds, decided not to pay them (in 2005, more or less), got most of their holders to exchange into New Bonds at pennies on the dollar, started paying the New Bonds, stopped paying the Old Bonds, the usual.
- Elliott Associates bought up lots of Old Bonds at pennies on the dollar, didn’t exchange, travelled the earth suing and capturing warships and stuff.
- Elliott won a big lawsuit against Argentina, getting a US district court and the Second Circuit to declare that Argentina couldn’t make any interest payments on the New Bonds without ratably paying off the Old Bonds.
- Argentina doesn’t want to pay off the Old Bonds.
- But it does want to keep paying the New Bonds.
- The district court now has to, among other things, clarify its injunction saying that Argentina can’t pay New Bonds without paying Old Bonds.
- Specifically: how, if at all, will that injunction apply to various people in the “payment snake” – indenture trustee, securities depository, banks and brokers and whatnots – that snakes between Argentina, which has the money, and the New Bondholders, who want it?
- Simplistically: Elliott thinks that anyone in the snake who takes money from Argentina and passes it on toward New Bondholders is “aiding and abetting” Argentina in violating the injunction. The snake members are more of the opinion that they’re just a snake and can’t be held responsible for what passes through them.
The head of the snake is Bank of New York Mellon, the indenture trustee on the New Bonds, who are in the unfortunate position of getting money from Argentina and dishing it out to New Bondholders. If the injunction applies to BoNY, then they will be in contempt of court if they do their job. They don’t like this, and filed a brief last Friday saying why.1 They are not alone in this; various other bits of the snake and their caretakers – the New York Fed, DTC, the Clearing House Association, etc. – have expressed similar emotions.
But BoNY is perhaps most affected and no one wants to go to jail just for being an indenture trustee, so they are full of good arguments about how they are not working for Argentina, have no duties to it, really only met Argentina that one time, and all in all are just agents for the New Bondholders and so can’t possibly be “aiding and abetting” Argentina or bound by the injunction. I find this pretty compelling actually!2 On the other hand, not binding anyone but Argentina to the injunction means in practice that Argentina can keep paying the New Bondholders while screwing the Old ones, since a US court can’t really enjoin Argentina all that effectively.3 This is not that appealing, so there’s some practical reason for the court to tell BoNY “tough luck, you’re an extension of Argentina, and so you have to do what we told Argentina to do.”
BoNY is well aware of that, because at some point its brief turns from a sympathetic and full-throated defense of its obligations to bondholders to … sort of the opposite. The shift starts innocently and metaphorically enough:
If the Court nevertheless concludes that BNY Mellon is bound by the Injunction and Argentina subsequently fails to make a Ratable Payment, BNY Mellon will face a potential conflict between its obligations to the Exchange Holders under the Indenture and its obligations to the Court. In that instance, BNY Mellon needs judicial guidance as to its duties and responsibilities. BNY Mellon should not be forced by Argentina’s independent violation of the Injunction to choose between exposing itself to the risk of contempt, on the one hand, or the risk of claims from Exchange Holders for breach of the Indenture, on the other. A path to avoid this conflict is charted by the Indenture, but BNY Mellon fears it cannot traverse it safely without judicial imprimatur.
But then it moves on to cite all the “wide range of exculpatory provisions” in the indenture, “which are designed to protect BNY Mellon from being exposed to liability.” This is true. The list includes:
- “BNY Mellon cannot be liable for any actions taken in good faith absent gross negligence”;
- “BNY Mellon is not required to expend, advance, or risk its own funds or otherwise incur personal financial liability in the performance of its duties”; and
- BNY Mellon doesn’t have to do anything “illegal or contrary to applicable law or regulation.”
So BoNY asks that, if the court won’t let it go about its business of paying New Bondholders, it at least make it clear that BoNY is off the hook:Consistent with the foregoing, to the extent that the Court extends the Injunction to BNY Mellon, it should make clear that BNY Mellon is under no obligation under the Indenture or otherwise to expose itself to contempt sanctions by paying out any funds delivered by Argentina in the event that Argentina violates the Injunction.BoNY lasted 15 pages before throwing the New Bondholders – y’know, the people it’s supposed to be working for – under the bus. Under the ceremonial sail-powered warship is I guess the right metaphor here.Anyway who can blame them? What’s fun is to imagine what happens if BoNY loses and Argentina just keeps on paying the New Bonds as it used to, which I guess is the default expectation. What happens?Meh, who knows. Elliott in its brief and reply brief on remand argue that the court should enjoin Argentina to pay ratably – so if it pays X% of the interest and principal due to the New Bondholders in December (when the next payment is due), it has to pay X% of the principal and interest due on the Old (defaulted, accelerated, due in full) Bonds. Some rough math: Argentina has about $3 billion of scheduled New Bond payments due in December, and about $8 billion of defaulted Old Bonds. So if there’s $3 billion to be paid, it should by that formula go ~27% (~$800mm) to New Bonds and ~73% (~$2.2bn) to Old Bonds. That much is specific enough but Elliott gets a bit vague on the logical next step, which is that the court should just instruct BoNY to pay out 27% (or whatever) of any money it gets from Argentina to the New Bondholders, and give the rest to the court to hand to Elliott and friends. But I guess that is the answer? Thoughts?Also open for thoughts: Of course we can’t come this far without taking a quick peek at Section 4.5 of the Credit Derivatives Definitions:
“Failure to Pay” means, after the expiration of any applicable Grace Period (after the satisfaction of any conditions precedent to the commencement of such Grace Period), the failure by a Reference Entity to make, when and where due, any payments in an aggregate amount of not less than the Payment Requirement under one or more Obligations, in accordance with the terms of such Obligations at the time of such failure.Any views on what happens if Argentina pays BoNY and BoNY, under the watchful eye of the U.S. District Court for the Southern District of New York, hands out three-quarters of the money to Elliott and a quarter to the bondholders? If BoNY is not part of the “Reference Entity” (Argentina) but just an agent of the New Bondholders, then BoNY getting the money and then handing it over to Elliott really shouldn’t trigger CDS, should it? Argentina, after all, has not “failed to pay.” The payment just got eaten by a snake. Though there’s this:There is some question about whether there is a “failure to pay” if Argentina transfers funds to BoNY in Buenos Aires, but BoNY fails to pay the bondholders in New York. There is just barely enough fog in the indenture to give ISDA and its lawyers some room for interpretation (though the “received by Holders” language in the indenture cousels caution). The rumor mill has it that Elliott holds lots of CDS on Argentina; it is on the Determinations Committee charged with deciding whether there would be a credit event.OH BOY am I looking forward to a contentious fight over whether Argentinian CDS is triggered next month. Others seem not to be. Here is Bloomberg today:4Traders are reducing bets Argentina will default within a year on speculation that enforcement of a U.S. judge’s order to seize some bond payments will be delayed by a Bank of New York Mellon Corp. legal plea in the case. … The cost of credit-default swaps that insure against a default over the next year dropped for the first time in eight sessions on Nov. 19 and closed at 6,098 basis points yesterday, down from a record 7,455 on Nov. 16.
I guess? 61 points seems like a lot of confidence that the convolutions here will end up triggering CDS. But then, Elliott’s done pretty well so far.N.Y. Fed Backs Argentina in Case Involving Debt-Service Payments [DJ]
Argentine Sovereign Debt [Shearman & Sterling]
Joseph Cotterill on Argentina [FTAV]
Pari Passu Endgames [Credit Slips / Anna Gelpern]1. That comes from this repository of all things Argentina at Shearman & Sterling, as does most of the next sentence.2. Important: BUT WHAT DO I KNOW? I reason by analogy though: the court presumably wouldn’t apply the injunction to the New Bondholders; i.e. if Argentina succeeded in getting their money to them the court wouldn’t take it from them to give to the Old Bond holders. (I know this in part because Argentina has gotten them their money in the past, before this judgment, and nobody’s trying to take it away from them.) So the question: when does the money pass from “Argentina and its extensions” to “bondholders and their extensions”? If it’s in Argentina’s treasury, or in the hands of their agents, then it’s Argentina’s and you can take it. If it’s in the hands of the New Bondholders, or their agents (like, in their bank account, for instance), then you can’t. If the indenture trustee is an agent of the New Bondholders, then you can’t take it from the indenture trustee. That’s a conceptually debatable question – the bondholders didn’t like find and hire BoNY; Argentina did – but BoNY cites various legal-looking stuff to say that it’s the bondholders’ agent, not Argentina’s. But, again: what do I know?3. Since it’s all the way over there in Argentina. Plus it has a navy, albeit a slightly reduced one.4. Terminal-only so far I think?5. There are others who seem more sanguine – Shearman & Sterling, for instance, think partial payment would clearly be a credit event, though they don’t break down partial payment by Argentina vs. partial pass-through by BoNY. Also here is a take from JPMorgan about various re-routing-of-coupon options that might or might not trigger CDS.
http://www.zerohedge.com/news/2012-11-18/argentina-ignores-us-court-decision-will-not-pay-elliott-and-holdouts
Argentina Ignores US Court Decision, Will Not Pay Elliott And Holdouts
Several weeks ago we summarized the highly entertaining (if largely futile) fight between naval commodore second class Paul Singer of Her Majesty's Elliott Capital Navy, and the defaulted and soon to be re-defaulted state of Argentina. The punchline, much to the chagrin of all those other "sophisticated" bloggers who read so very much into the recent decision of the 2nd Circuit Court of Appeals, was the following: "What this really means is that Western courts have decided that Elliott has not been stripped of pre-petition rights despite, or rather in spite of, holding out, and is entitled to collecting up to par recovery. There is one problem: there is absolutely no enforcement mechanism ! And therein lies the rub: because how does a court located on Pearl Street in New York order the Argentina State Treasurer located in Buenos Aires to wire a payment on bonds, via intermediary banks, that Argentina effectively has disowned? It can't." Today, Argentina just made it very clear that once again those desperate for page views by analyzing and overanalyzing an utterly meaningless court decision's implications for rogue sovereign debtor will have to try even harder, following Reuters' report confirming precisely what we said would happen - that Argentina would completely ignore the appeals court decision, and not pay holdout, read Elliott, bondholders.
Now comes the realization that in a broke sovereign world, pretty much anything goes, unless enforced by trade (or naval) blockades, and/or, well, war. And as long as the impaired party is simply a uber-prosperous hedge fund, the probability of either happening is negligible. Said party, however, may continue confiscating Argentinian ships at will: hopefully it is capable of creating an efficient clearing market for three-mast frigates.
From Reuters:
Argentina will not pay creditors who own defaulted bonds despite a U.S. federal appeals court ruling in favor of the holdout creditors, the economy minister was quoted as saying in an interview published on Sunday.The 2nd U.S. Circuit Court of Appeals in New York last month ruled that Argentina discriminated against bondholders who refused to take part in two debt restructurings as the nation tried to recover from a $100 billion default a decade ago. The decision upheld a ruling by U.S. District Judge Thomas Griesa.The South American country appealed that ruling, and on Friday told Griesa that sovereign debt repayments made outside the United States are immune to U.S. law and seizures by holdout bondholders.
"Argentina is responsible and will fulfill all commitment it has made to its creditors. ... Our creditors are all those who participated in the two restructuring proposals in 2005 and 2010," economy minister Hernan Lorenzino told newspaper Pagina 12."We're going to continue to oppose any alternative that goes beyond that. We're going to continue presenting and defending our position to each legal entity."The judge is expected to give a speedy response, given that Argentina is due to start making $3.3 billion worth of payments to exchange bondholders starting Dec. 2.
We, for one, can't wait until this tragicomedy hits the ridiculously politicized US Supreme Court... and CNN's reporting on the decision:
"Argentina reiterated to judge Griesa that the decision taken about pari passu (equal treatment) cannot prejudice creditors who entered the debt swaps," Lorenzino was quoted as saying."We're going to continue our legal defense in all areas possible, including in the United States' Supreme Court," Lorenzino added.
We conclude this post with what we said last month, as this response from Argentina merely confirms our expectations:
As for the Argentina vs Elliott bare-knuckled match, enjoy it while you can: very soon the Latin American country will likely proceed with yet another round of creeping selective defaults, exchange offers, consent solicitations, and other debt reorganizations, which will make the current free-for-all into a total and epic labyrinth of creditors, interests, bondholder classes, general unsecured claims, and other total confusion which we are confident, will soon lead Elliott to give up in disgust and just walk away.
Those curious what really happens next are urged to take a quick glance at the chart from "Meanwhile in Argentina..."
Finally, we can only hope that other "financial bloggers" who tend to opine on these, and other topics of importance, can at least read the first chapter of "Sovereign defaults for dummies" because endlessly writing on the issue from a presumed position of "expertise" while being wrong constantly and without remorse, does little to augment their credibility.
and.........
http://www.zerohedge.com/news/2012-11-16/meanwhile-argentina
Meanwhile In Argentina...
Dear Buenos Aires: we have three words of advice - "hide yo' catamarans" (before Paul Singer comes and collects them all once you default again in what the market now deems is inevitable to occur in the next few weeks). 5Y CDS on Argentina just reverse-Baumgartnered to over 3000bps (49/53% upfront) and short-dated CDS imply a 60% probability of default (assuming a 25% recovery).
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