Argentina Debt The French Strategy

I think France saw a great opportunity to step up helping Argentina some weeks ago when it seemed that both the United States Executive Branch and the French-led IMF would file "Argentina´s best friend" briefs with the U.S. Supreme Court. Wanting to play a role in international finance matters, France would also be present in the "lawsuit of the century" in debt restructurings. Leadership issues involved. And also the "carrot" to Argentina because of the debt with the Paris Club. Besides, it would also show that France understands debt crises and therefore it would have more authority in the probably upcoming European debt restructurings. A three-fold great strategy for France. International leader along with the U.S. and the IMF, helping Argentina (to have Argentina in Paris) and become an authority in Europe.

Without the U.S. and the IMF, the French friend brief is left alone, for the moment. Therefore its firepower is reduced, but unless it is in the game, and may use it with Argentina at the Paris Club and in Europe for the debt restructurings of some of its members. Of course, it would be better if the U.S. Supreme Court pays attention to its brief. Without the U.S. and the IMF I would be pessimistic for now. However, we still have the next round of cert petitions regarding the upcoming ruling from the Second Circuit on the payment formula and the injunctions on the Bank of New York and other financial institutions. Which is another opportunity for France to step as is it for the U.S. Executive Branch and the IMF. The Supreme Court would then pay more attention.

Eugenio A Bruno
eab@garridolawfirm.com

Disputes between the United States and Argentina governments?

I dont think there is a dispute between these two governments, unless there is one, in which case the situation may be very difficult. Probably the IMF spokeman misexplained the real situation meaning that there was a discrepancy between the U.S. and other members regarding the IMF eventual brief. Not a dispute between the U.S. and Argentina. The existing dispute is between Argentina and certain private creditors, who are litigating against Argentina before the U.S. courts. Eventually there could be a dispute between Argentina and the U.S. Courts down the road. But not now.

I also understand that informally the U.S. government has indicated that nothing has changed and they would be ready to step up if the U.S. Supreme Court asks its opinion. They probably would also file an UNINVITED brief in the upcoming appeal regarding the injunction against the Bank of New York Mellon if the ruling from the Second Circuit is negative to Argentina.

Of course, an eventual amicus brief from the U.S. government helps a lot, but obviously the ultimate decision comes from the Supreme Court on (i) granting or denying the certiorari petitions, (ii) staying the decisions from the Second Circuit, (iii) asking Argentina a bond as a condition for the granting the cert petitions, and (iv) deciding the legal issues.

Eugenio A Bruno
eab@garridolawfirm.com

What to make of the latest

The United States decided not to participate now in favor of Argentina as an UNINVITED amicus. This negative affected the decision from the IMF not to file a brief as announced.

Questions for the near future:

1) Will the Supreme Court ask the U.S. to file an INVITED brief?

2) If so, what the U.S. government will?

3) After the upcoming ruling from the Court of Appeals, Argentina will appeal to the U.S. Supreme Court if the ruling is negative (not decided yet particularly on the attachments of the Bank of New York). In this case, the interest to the U.S. government may be more important as the payment system of New York may be affected. In this case, the U.S. government may decide to file an UNINVITED amicus brief, but this remain to be seen.

4) Of course, if no amicus brief from the U.S. government, the situation with the Supreme Court will be difficult. What will the Court do absence U.S. help?

5) If the Supreme Court accepts the appeal (either the existing one or the upcoming), will it be with Stay of Execution of the rulings from the Court of Appeals?

Eugenio A Bruno
eab@garridolawfirm.com
 

IMF, France, the United States, Argentina and the U.S. Supreme Court

In this frency of Amici, I think what could affect the United States courts, particularly the U.S. Supreme Court in accepting to take the Argentina´s cert petition is a filing from the United States executive power.

IMF without the U.S. filing? Value to be seen.

IMF with the U.S.? More important.

France without the U.S.? For your newspapers and French-Argentine relationship only.

It is key to have the U.S. filing, either uninvited these days, or after an eventual petition from the U.S. Supreme Court, to boost the chances for the U.S. Supreme Court to accept the cert petition. 

Eugenio A Bruno
eab@garridolawfirm.com

Argentina Debt - Upcoming Analysis: Credit Events and Different Zones of Legal Risks (from low to very high)

Argentina Debt - Decision from the Belgian Court

The decision from the Belgian court because it may open the door to attach the flow of payments intended to Argentine bonds in Euros, payable in Europe through the BNY Brussels and Euroclear.

Eugenio A Bruno
eab@garridolawfirm

Argentina Debt: European Injunctions v New York Injunctions

The International Game of Injunctions

Lawyers for holders of Argentine bonds issued in Euros sent a letter to the NY Court of Appeals letting said court know that they had filed a petition before Belgian courts to ask for a "European injunction" against the possible "NY injunction" that may be issued by judge Thomas Griesa with respect to the flow of payments of those bonds. The purpose of the petition is to protect Bank of New York Brussels and Euroclear, from where the money goes through.

The Belgian court rejected such petition on the ground that said petition was "premature" as there is enough time, according to the court, to analyze the "merits" of the case.

A new hearing was scheduled for September, where the Belgian court will discuss the "merits" of the petition.

Eugenio A Bruno
Garrido Law Firm
eab@garridolawfirm.com

Quick comment - Court of Appeals of the Second Circuit of New York will all the information necessary to issue the ruling

Last-minute appeal to the U.S. Supreme Court - What´s next?

The Argentine government yesterday filed a cert petition against the ruling issued by the U.S. Court of Appeal dated October 26, 2012.

Issues:

1) Whether or not the U.S. Supreme Court will accept the certiorari petition.

2) When the decision will be taken.

3) Whether or not the U.S. Supreme Court will request a bond to accept the petition.

4) Whether or not the U.S. Supreme Court will order Argentina to comply with the eventual ruling from the Court of Appeals during the time it takes to decide the cert petition.

5) The final outcome if it accepts the cert petition.

If you need any advice or opinion about the above-mentioned points, please contact us:

Eugenio A Bruno
eab@garridolawfirm.com
00 54 11 4 850 4000

Argentina Debt and Sobereign Debt Litigation: The Next 15 Days

Argentina Debt: What will the U.S. Court of Appeals of New York resolve in 15 days, and what the government responses will be: Favorable/Negative - BNY Attachment Yes/No - Payment outside NY: Possible/Impossible - Re-reouting? - In contempt with the NY Justice? - Payment in Argentina?

http://papers.ssrn.com/sol3/results.cfm?RequestTimeout=50000000

Eugenio A Bruno
Garrido Law Firm

Upcoming NY Courts ruling on the Argentina Debt Legal Case - What to do if the decision is negative

 Upcoming NY Courts ruling on the Argentina Debt Legal Case - What to do, if something, if the decision is negative.
Eugenio A Bruno
Garrido Law Firm

Explanation in this recent paper (free and safe download from Social Sciences Network Services website): 
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2279461

The need to avoid a "Back to the Future"

Sovereign Debt Litigation: Revisiting the Preview of the upcoming Argentina Debt Ruling in NY

Reviewing the preview of the upcoming ruling from the N.Y. Court of Appeals

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2252210
Eugenio A Bruno
Garrido Law Firm

New Paper on Argentina Debt and Sovereign Debt Litigation

Sovereign Debt Restructuring: Covenant and Default Clauses in Sovereign and Corporate Bonds and How the Difference Among Them Impacts in the NMLCase Against the Republic of Argentina in New York

Just published in Social Science Research Network:

http://ssrn.com/abstract=2279461

 

Eugenio A Bruno

Garrido Law Firm

 

Stats time: My take - Let me know about yours

Judicial Outcomes
Eugenio A Bruno
Garrido Law Firn
eab@garridolawfirm.com

"Pure Mathematics and Calculators"

• Argentina: it is like Series B in soccer.
• U.S.: draft for the NBA. And game 3 of the Heat-Spurs series.
• World soccer: who will qualify to the World Coup

 Judicial Outcomes


As the decision from the Court of Appeals approaches, it is a good time to discuss some general possibilites about its outcomes. Let´s go straight to the point. My take:

1) Decision on ratable payment: 9 to 1 in favor of the plaintiffs. It is very difficult that the judges ignore the contracts (indenture and terms and conditions of the bonds).

2) Decision on the injunctions on the Bank of New York: two months my take was 50-50%. Or tied in 50 to 50. In the last two weeks my perception may have changed. Why? Filings from Citibank Argentina and Eurobondholders discussing the effects of eventual ruling affecting the chain of payments (basically, "dont attach my payments"), the "policy paper" from the IMF (coupled with complete lack of being friend of Argentina through the filing of an Amicus Brief) ("we want the injunctions because that would prove that Anne Krueger and the IMF were right in promoting the SDRM and the market-solutions to solve defaults don´t work) and significant silence from the U.S. government ("is the U.S. a true friend of Argentina?" - of course you may ask the opposite question if you want, but I would not recommend it). So, now my take is 7 to 3 towards the plaintiff. Still, 30% is good, as Wall Street and the majority of the legal community in NY considers that it is dead cause, a sort of 9.5 to 0.5.

3) U.S. Supreme Court? Again, I am in minority again. I think the supreme tribunal will accept the case. My colleagues think I am wrong. I dont think so. My take is towards acceptance. My doubt is whether or not the Supreme Court will request a bond for the appeal, some kind of escrow payment by Argentina. High chances it will.

4) Decision from the U.S. Court: too soon.

And what about paying outside New York? Give me a call. 

Singer and Dart´s counterattack: "U.S. Courts - reject the petition to have this case litigated in Belgium"

Response from the Litigating Holdouts to the Belgian Case

Aurelius and all other parties to the NML case in NY filed a letter asking the NY Court of Appeals to reject the petition from the Eurobondholders to have a Belgian courts hearing the case and deciding about it.

The letter says:

"The highly publicized and widely known litigation before Judge Griesa and this Court
has been pending for more than two years. At the eleventh hour, the Euro Bondholders thrust
themselves into this litigation raising various highly attenuated and extraneous issues and
objections, all of which have been given a respectful audience by this Court and the district
court. Now, while this Court considers its decision, they have filed a last-minute collateral attack
on these proceedings in a foreign jurisdiction of their choosing. Needless to say, U.S. courts do
not defer to such later-filed proceedings. Laker Airways Ltd. v. Sabena, Belgian World Airlines,
731 F.2d 909, 927 (D.C. Cir. 1984) (“The mere filing of a suit in one forum does not cut off the
preexisting rights of an independent forum to regulate matters subject to its prescriptive
jurisdiction.”)."

"... Intervenors’ suggestion that this Court should in some fashion defer to the Belgian
litigation that they have decided to initiate is unfounded, is unwarranted, and borders on the
outrageous. Indeed, it is audacious in the extreme for these intervenors to bring an essentially
unrelated case in an unrelated jurisdiction for the obvious purpose, at the last minute, of derailing
or delaying the proceedings of this Court. This Court should, of course, handle the pending ng
expedited appeal as it otherwise would, without regard to the pendency of foreign litigation."

So the NY litigants want the ruling to include "ALL" payments made to the performing bonds, including the ones subject to Argentine law and now also the ones subject to English law, both payable outside the United States. In the case of Argentina, the payment systems uses the Central Bank and Citibank Argentina, and in the case of Europe, The Bank of New Europe. Still more litigation and uncertainty. The NY Court of Appeals should not affect these payments (Argentina and Euro bonds), but in the past the U.S. courts took jurisdiction over bonds issued exclusively under Argentine law, but with certain contacts with the U.S., such as road-shows, certain account payments, etc. This aspect would be the key in my opinion.

Eugenio A Bruno
eab@garridolawfirm.com

This material may only be used with express citation.

New York courts´ injunctions are not welcome in Europe... at all! Not another Normandie and D-Day

There is an European judicial audience now, with respect to Argentine defaulting and perfoming bonds
Eugenio A Bruno
Garrido Law Firm
eab@garridolawfirm.com




The Europeans, as the Americans, want an audience on the Argentina legal case, and they will have it. Particularly on June 25, the Brussels Commercial Court will hold a hearing. The legal proceedings have been initiated by certain holders of Argentine perforning bonds subject to English law (i.e. not Griesa´s laws as they would love to express I guess). The case is denominated Knighthead Capital Management,
LLC et al. v. Bank of New York S.A., et al.

The plaintiffs are from Belgium and hold euro-denominated bonds (“Euro Bonds”) issued in Argentina’s 2005 and 2010 exchange offers. The Euro Bonds are denominated in euros, governed by English law, and payments thereon are made wholly outside the U.S. through foreign entities.

According to the recent petition, the Belgian plaintiffs seek an order directing defendants Bank of New York Mellon S.A., Euroclear S.A., and Euroclear Bank S.A. (“Belgian Defendants”)—all Belgian entities—to
comply with their alleged duties under Belgian law and the Trust Indenture governing Argentina’s
exchange bonds. This means that the eventual injunctions from America, holding the whole BNY group around the world liable of complying with the NY court orders even with respect to foreign bonds, should, according to the Belgian plaintiffs fall somewhere in the Atlantic right before Europe (not another Normandie and D-Day)

On May 30, 2013, the Belgian Court accepted expedited briefing and
scheduled a determinative hearing for June 25, 2013.

The notification to the NY Court of Appeals from the Second Circuit was filed today and expresses that "as the Euro Bondholders have explained, the District Court’s injunction against foreign
parties impermissibly imposes obligations irreconcilable with foreign parties’ duties under local
law. The Belgian proceeding will conclusively determine the Belgian Defendants’ obligations
under Belgian law. We respectfully request that this Court find the injunction inapplicable to
foreign entities altogether, or, at minimum, withhold judgment respecting the injunction’s
applicability to Belgian Defendants pending determination by the Belgian court. By holding the
injunction applicable to Belgian entities acting on Belgian soil, this Court could contravene a
Belgian court’s definitive interpretation of Belgian Defendants’ obligations under Belgian law,
thereby violating the well-established principle that courts cannot require foreign nationals “to
refrain from doing an act in another state that is required by [that state’s] law.”

Therefore if the petition is accepted there will be a dispute among courts, Americans v Europeans, with the Bank of New York as hostage as the European courts will reject the injunctions and order the BNY to continue paying the eurobonds. Of course, the logical questions are what the NY courts will do and what the consequences for the status of the Argentine bonds will be. Additional analysis coming up soon.

Options to explain the IMF "POLICY PAPER" (what a name). You will not like the options

Few weeks away from the ruling from the NY Court of Appeals from the Second Circuit and with the mistery about its content growing up, the IMF is back in the game.

I already referred to the "too little too late" IMF "Policy Paper" in my last post. Now we comment on the timing. Why now? Why not some weeks/months before or after? What about filing an Amicus Brief in January when everybody participated in the case (all kind of bondholders, institutions, academics, politicians, etc.). Anne Krueger participated by her own, not following IMF directions, I am sure. So, again, why now?


One option: the paper was very complicated (it was not I asure you) and time was needed, plus all the bureaucry and internal approvals involved. "And so we just finished it...". We have no idea about the upcoming ruling and since we got paid to prepare policy papers, why not now? Still one option. 

Second option: we dont know anything about the upcoming ruling from the Court of Appeal, and so it is just a coincidence that we launched this paper right before such ruling. The fact that we opine that an eventual negative ruling against Argentina may ruin the existing restructuring debt mechanisms is not intended to press the judges. Hold on, the existing restructuring mechanism does not involve the IMF and our SDRM mechanism, right? Right. Then no, we need another option.

... Third option: we dont know anything about the ruling but... a negative ruling is not bad (in fact it is what we need)... because we want the Anne Krueger, SDRM, or the country bankruptcy supranational courts. So another judicial mess would convince everybody that we are right. And we need to explain it before the ruling, because after it would not be very nice. They would tell that we are late... Let`s speak up now, get our officers and academics ready and if an eventual negative ruling takes plac... then more chances for us. What a stick to the private creditors and sovereign countries that forced us to put the SDRM in the backburner for years and years. Now, it will be out time... It is not that we were waiting it, but.... it is very welcome!

Four option: we dont know anything about the ruling, but since we still want the SDRM but dont want a negative ruling against our good friend Argentina (of course we forgot to file an Amicus brief because the bureaucry times are very slow and the internal paperwork attempted against the speed and short notice that the court gave the friends - only two months), we better say something, just in case it is negative...

Fifth option: we know the ruling, and will be negative, so we want to revert it so that we can help our friend Argentina... Wait... that means that by doing that our SDRM will be dead for another 10 years? Yes. Then, why now? No idea.

Six option: we know the ruling and it will be negative, and there are no chances to overcome it, so it will be a mess. Less re-launch our Krueger SDRM. The rest will be done implicitly but we are ready. Plus the SDRM may be used with Greece, Spain, Italy, Portugal, Ecuador..... So everybody will need us. Let`s go Griesa, and of course these three judges (dont remember the names...). Raggi, Pooler and Parker! Right! The U.S. courts will open the doors for our system and for us...

Seven option: We know the ruling and it will positive. What a pitty... Less still promote our SDRM. Why? It does not make any sense, right? Right. But may be the U.S. Supreme Cour reverts and discipline our lets say it "hated Argentina" and we are the world firemen again.

Other options: your bet.

IMF: "See, we told you - Anne Krueger was rigth"

The IMF is back with suggestions on sovereign debt restructuring. They published a paper on May 23 about the state of the sovereign debt restructuring. And mentions the Argentina judicial case in New York.

They promote debt restructurings, and sooner. "Restructurings have been too little and too late." Probably, the paper is too late to influence the NY panel in the Argentine case. An Amicus Curiae brief should have helped...

The IMF also promotes haircuts: remember the moral hazard. The theory is back. The losses should be borne by the private creditors too because they financed bad governments. Usually the IMF also participated in financing those bad governments. So....

And finally, the IMF is back with its SDRM, or Anne Krueger proposition, which is a bankruptcy systems for sovereign debts. Why? Because the Argentine legal case in NY is showing that the CACs will not be enough to deal with the holdouts. However... the SDRM may also fail, because it is also based on collective action from the creditor on aggregate basis, such as the new CACs. I guess that at least they must show something to help their members. Too little, too late.

Eugenio A Bruno
eab@garridolawfirm.com

The "Sleeping Hammer" and the Delivery Date for the N.Y. Appeal Court?

We expect the "Delivery Date" of the Court of Appeal´s Decision to be around June 27, 2013
Eugenio A Bruno
Garrido Law Firm
Director, TIG Americas

 

The market may believe that the "hammer" is sleeping, but I believe that the three judges are: 

i) discussing internally (inside the pannel) whether or not there is consensus about the decisions (ratable payment and injunctions). In this regard, my take is that want to issue an uniformed decision, without dissents, which could eventually be strong. They want to avoid potential reversals from the U.S. Supreme Court and overall, that their ruling is wrong;

ii) discussing, informally, the issues with debt, financial and legal experts;

iii) discussing the issues with their own legal teams (clerks);

iv) discussing, informally, the case with the U.S. State, Treasury and Justice Departments regarding the "national interest" and other policy implications of the ruling;

v) having some doubts about the effects of the injunctions and may be also about the pari passu clause, but to a lesser extent;

vi) FINALLY, writing the ruling, which must be legally well-grouded, and should be long, with citations about applicable jurisprudence, among other aspects.

All this, of course, takes time. But please dont go to the beach in the U.S. summer time before ruling!

Reuters: Argentina faces very different debt default if loses legal fight

 http://www.reuters.com/article/2013/05/13/us-argentina-debt-idUSBRE94C0AB20130513

 

 

 

 

Discussion of the new Argentine Financial Instruments under the New Money Laundering Program

We will discuss the new program and debt instruments in two seminars of TIG Americas:

May 17 in Montevideo (info.uruguay@theinstituteglobal.com)

May 29 in Buenos Aires (info.argentina@theinstituteglobal.com)

Different judicial outcomes will lead to different policy options and financial outcomes

Different judicial outcomes will lead to different financial outcomes

At the end of the day, a negative and definitive judicial decision may lead to a default. On the contrary,  a better ruling may save the entire situation. Read this paper and send me your comments and questions at eab@garridolawfirm.com
 
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2252210

Judicial Options Listed Vote for yours

Why outcome we will have? Send me your election and explanation to eab@garridolawfirm.com of the options listed in this paper:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2255962

Or other options not listed

Eugenio A Bruno

Upcoming paper on Argentina Debt with questions and answers

I am writing a paper with questions from people that are following the Argentina Debt situation. In case you would like to ask, please send your questions to: eab@garridolawfirm.com

My new book already in Amazon

My new book already in Amazon.com, along my last one:

 "Sovereign Debt and Sovereign Debt Restructuring"
May, 2013

"Global Financial Crisis"
September 2009

Eugenio A Bruno

Leading paper in the Social Science Research Network from the United States

Paper on the strategy of NML listed as top ten in the most consulted scholar international website

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2255962

The Banco Nacion case in New York anticipates a new battle: attachment of bank accounts and state-owned companies?

 

The Banco Nacion case in New York anticipates a new round of attachments, in particular, against state-owned companies

 Eugenio A Bruno - Garrido Law Firm - TIG Americas

NML asked judge Griesa to oblige Banco de la Nacion Argentina to disclose the bank accounts in said financial institution of the government of Argentina, its state-owned companies (where the government owns more than 25 per cent of the capital) and certain individual officers. Judge Griesa accepted the NML's asking and ordered, on February 8, to Banco Nacion to disclose such information. The order includes bank accounts not only in the branch of Banco Nacion at New York but also in various countries, including Uruguay, Panama, Brasil and España, among others. BNA responded yesterday (we dont have the response yet, but expect to have it today).
The purpose of the asking of course is to identify those assets with a view to eventually attach them if that is possible under U.S. law.
What assets may NML attach? Of course, NML and other litigant holdouts have tried to attach 30 different assets since 2002, failing in most of the cases. Therefore the odds are still against the fortunes of NML. And that's why the pari passu/Bank of New York case being litigated at the U.S. Court of Appeals is so important, basically because of the prior failures.
The likelihood of attachments of bank accounts of the federal government at Banco Nacion outside Argentina is not high taken into account various precedents similar to this case, particularly bank accounts of the Anses in New York in 2010.
However, the Banco Nacion case will bring into the attention of the parties the bank accounts of state-owned companies, in which the government owns more than 25 per cent.
As an initial clarification we need to say that as such companies are legally separated from the federal government they are therefore not the debtor under the bonds in default (the federal government is) and consequently they are not responsible for the repayment of them. Thus their assets should be immune from attachments based on claims against the federal government. However, there is one exception that may turn their assets into "attachable" ones: that exception is called the "alter ego theory" and means that if those companies are managed by the federal government, then "they would be considered part of it". The criteria to determine whether or not they are managed by the federal government depends on the facts of each case but the main defense is if they are managed independently, with a management team of their own and does not follow instructions from the government. If they dont pass this test, their assets may be attachable.
The alter ego theory was applied by Griesa and the Court of Appeals in a case against Argentine Central Bank reserves, but the U.S. Supreme Court reversed their decisions by using a different protection specifically existing for those kind of reserves arising from the U.S. Foreign Sovereign Immunities Act. But there is no similar protection for assets owned by state companies if they are controlled by the government.

Finally, on a related aspect, NML and other holdout litigants might attempt to attach the shares of the government in YPF, under the theory that those shares are commercial assets and therefore subject to attachments. For the moment it is too soon to determine whether or not such attempts will succedd.

For a complete analysis of the NML latest brief see the following paper: 
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2255962

*Eugenio A Bruno is a legal counsel for investment banks, financial advisory firms, exchange bondholders and non-litigant holdouts.

 

Argentina Debt: U.S. Court of Appeals just denied the Duane Morris motion to file an Amicus brief - Now the judgment?

The United States Court of Appeals just denied the motion from the Duane Morris law firm, counsel for Italian and Argentine bondholders, to file a new amicus curiae brief.

The court only said:

"IT IS HEREBY ORDERED that the motion by Duane Morris Individual Plaintiffs for leave to file
an amicus brief is DENIED."

We believe this decision was expected as the court was not prepared to re-open the case for new amicus presentations or any kind of unsolicited briefings. The court would now either (i) take the way towards issuing the ruling (we expect a negative outcome to the Republic regarding the ratable payment and still uncertaintly relating to the extent of the injunctions), or (ii) request some briefings from experts invited by the court and/or the Bank of New York, as an affected institution.

Eugenio A Bruno
Garrido Law Firm
eab@garridolawfirm.com

Argentina Sovereign Debt: Duane Morris (Italian retails) Amicus: The Outrageous Response from the Republic

Duane Morris (Italian retails) Amicus: The Outrageous Response from Argentina

Eugenio A Bruno

Garrido Law Firm

TIG Americas

We need to revisit what Duane Morris said in its amicus brief (legal counsel for retail Italian and Argentine investors): “The only sensible resolution is a lump-sum payment of all interest and principal that has accrued and become due and payable . . . to all the current holders of the holdout bonds.”

They mean: the upcoming ruling from the Court of Appeals and/or the U.S. Supreme Court, per se, will apply to ALL HOLDOUTS by operation of law. This is making a ruling of USD 1.47 billion into one of USD 15 billion, just like that…

So, what Argentina responded??????

1)      “See judges, the ´me toos´ will come after us to get paid!

In Argentina´s professional words: “First, the motion (from Duane Morris) demonstrates that the present appeal does not concern “only” the $1.47 billion demanded by NML and the other plaintiffs appellees, but potentially the entire amount of outstanding defaulted Republic debt subject to a pari passu clause. As the Republic demonstrated in its Proposal – and as neither plaintiffs nor the Duane Morris Individual Plaintiffs dispute – acceptance of the district court’s “ratable payment” formula could open the floodgates for over $15 billion in similar pari passu claims… The Duane Morris Individual Plaintiffs are themselves just one group of defaulted debt holders who would invoke the same language to demand immediate payment in full, plus interest. Many others will surely follow.”

2)      “NML wants to get paid, runs with the money, and if Argentina does not have more money, the me toos would need to prove that. NML does not care about the me toos and how Argentina will need to deal with them. This lawsuit is ´only´ about USD 1.47. Who cares about the rest? We, as the Argentine government, do¨

In more professional arguments by Argentina: “In an attempt to escape this economically unsustainable result, plaintiffs urge the Court to adopt a “first come, first served” pari passu remedy whereby plaintiffs get paid in full because they brought their pari passu claims first, and all other holdout creditors that follow get whatever is “equitable” at that point in time. See Pls. NML Proposal Response at 12 (“If holders of other defaulted

indebtedness later bring equal treatment claims of their own, Argentina will have ample opportunity . . . to make a showing of financial need, based on

circumstances then prevailing, for the district court to consider in shaping a

remedy.”). This proposed remedy demonstrates that plaintiffs do not want “equal treatment” at all, but to enforce their monetary claims in full, regardless of what other, exactly similarly situated creditors receive.”

3)      “Duane Morris´ brief (but also NML submission on April 19) are replete with errors (of course) and if you judges accept further briefing, we will reply (please accept more – but reject its content down the road - so the case takes more have more time but we prevail against them)”

Professionally speaking: “Second, both the Duane Morris Individual Plaintiffs’ proposed submission and plaintiffs’ April 19 brief are replete with errors. If the Court allows any further briefing, the Republic respectfully requests the opportunity to submit a brief reply to correct them… For the foregoing reasons, if the Duane Morris Individual Plaintiffs’ motion for leave to file an amicus brief is granted, the Republic should be permitted

to reply to it, as should the many other interested parties.”

4)      “The Duane Morris´s crazy petition shows that our payment proposal is the only one that you judges should accept as viable to solve the problem with the defaulted debt”

The final professional comments: “There are thousands of claim-holders that are similarly situated to plaintiffs. This case has far broader implications than plaintiffs’ claims alone. The Republic can sustainably service all outstanding claims if its Proposal for pari passu debt service is accepted, because only this Proposal reflects the equitable consideration of all potential claimants, both those who have filed claims already, and those who could do so in the future under plaintiffs’ pari passu interpretation.”

NML Brief: Analysis and Implications

Sovereign Debt Litigation: Decoding NML Final arguments against the Republic of Argentina and why litigating so hard may be counter-effective to plaintiffs´ goals when the defaulting debt is large

Eugenio A Bruno

Director TIG Americas

Partner - Garrido Law Firm

eab@garridolawfirm.com

April 23, 2013

This paper discusses the recent brief filed in the famous case NML v The Republic of Argentina which takes place before the federal tribunals of the New York, and how such filing may affect the resolution of the litigation, probably forcing Argentina to default.

We take the main arguments of NML and analyses them in lieu of Argentina´s political and financial situation as well as certain contractual limitations that prevents it to better the terms of the payment proposal it made on March 29, 2013.

Finally, we include certain remarks about the future developments under this case.

A.      The Most Famous Case in the History of Sovereign Litigation: NML v The Republica of Argentina B.      The Most Recent NML Brief and How it May Force Argentina to Default Sovereign Debt Litigation: Decoding NML Final arguments against the Republic of Argentina and why litigating so hard may be counter-effective to plaintiffs´ goals when the defaulting debt is large Eugenio A Bruno Director TIG Americas Partner - Garrido Law Firm eab@garridolawfirm.com April 23, 2013 A.      The Most Famous Case in the History of Sovereign Litigation: NML v The Republica of Argentina[1] NML v Argentina is a case that takes place before the New York federal courts and as such it is a long-lasting and very demanding and stressful legal battle for the Argentine population, economy and financial as well as to the plaintiffs. As its effects may have certain significant effects to the sovereign debt markets (less than originally expected to me however) the case is also closely followed by scholars, emerging market investors, finance government officials from other countries, multinational financial institutions, among others. Under the case, NML, four other investment funds and 13 individual investors have obtained three favorable cases, two from a district court and one from a circuit court. The former rulings were issued by judge Thomas Griesa and the latter by a panel of three judges from the Court of Appeals. There are two main legal discussions that are happening under the case, both of which are novel - the meaning and extent of the pari passu clause and, as a way to enforce judgments against Argentina (which as a sovereign debtor receives the benefits from the protection of the U.S. Foreign Immunity Sovereign Act that, in practice, means that a sovereign bond plaintiff may obtain favorable rulings against a country but never be able to collect on those judgments and therefore be at the mercy of the debtor), the attachment of flows of payments directed from Argentina as issuer to the holders of Argentina debt bonds that is being paid by the country. Those payments are transferred through the Bank of New York. A significant discussion under the case is whether the Bank of New York is trustee for the exchange bondholders, agent for the Republic of Argentina or both. The eventual decision about the nature of the Bank of New York will have an important effect on the outcome of the management of the debt situation by Argentina because if it is decided that said institution is effectively enjoined by the court´s decisions, Argentina would be prevented from continuing paying the exchange bondholders and therefore a risk of a new default would eventually increase unless Argentina decides to pay the court ruling (very unlikely from political and finance reasons) or it carries on an arrangement with the exchange bondholders to change the place of payment (from New York, the current place of payment, to a given country in Europe or even Argentina as some reports have indicated),[2] but which is very difficult for legal reasons. The three rulings in favor of the plaintiffs refer to the pari passu discussion.[3] But only two of them refer also to the attachment of the payment to the exchange bondholders and both are from the court of appeals, which means that the circuit court has not issued an opinion about it yet.[4]  What is very remarkable about the case is the determination from both parties to stick to its stances and arguments, which raise the stakes under play, presents continuous drama to the different particular legal developments under the case (including to the simplest ones) and defer to the courts the resolution of this dispute, as opposed to negotiating a potential settlement. Deferring all to the courts, which of course is in several occasions the purpose of lawsuits, may be dangerous, in these highly complicated sovereign debt cases because a negative outcome to Argentina, for example, may force the country to incur in a new default. But this eventual consequence of a negative judicial outcome against Argentina must also be analyzed from the eventual consequences to NML and the other plaintiffs under this case. It is my impression that the plaintiffs would be also facing a dire situation based on the potential fact that they will not receive the money from their eventual positive judgments as Argentina has indicated that it will not pay them.[5] It may thus be a lose-lose situation, even more under a potential chaos given by the default, unless something is worked out between Argentina and NML (which Argentina is refusing to a great extent[6]) or the U.S. Supreme Court accepts an appeal right away, which I think will happen and therefore the legal battle would continue for additional months. However, at the end of the day if Argentina ends up losing all appeals and is force to pay and it does not as its principal officers and counsel have indicated several times, NML and the other plaintiffs in this case will not collect on the judgments. We will expand the reasons of this understanding hereby.  B.      The Most Recent NML Brief and How it May Force Argentina to Default The brief filed by NML and the rest of plaintiffs on April 19, 2013[7] is a sign of the utmost determination shown so far by the hold-out creditors against Argentina before courts as such brief is the last filing by them prior to the upcoming judgment from the U.S. Court of Appeals of the Second Circuit of New York, and includes important legal points relevant not only to this particular lawsuit but also to certain areas of sovereign debt litigation which have a high degree of uncertainty. Those legal points are discussed hereby, along with comments from me related to each point. This way, each argument used by NML is copied and analyzed from this author. 1) Argentina's defaulting stance and complete lack of respect to principles of rule of law, and U.S. laws and courts This is the first argument of NML. It reads: "With its latest submission in this Court, the Republic of Argentina continues its long and consistent pattern of defaulting on its contractual obligations, defying the laws of the United States (which its contracts expressly invoked), and showing contempt for the courts to whose jurisdiction it unreservedly submitted. The government of Argentina plainly believes the rule of law does not apply to it." These arguments have been used several times and respond to the finance terms of the Argentine proposal, filed on March 29, 2013[8], which offered payments with large discounts compared to the moneys recognized to NML by the court judgments both from the district and circuit courts. Of course, now NML is using words that have more emotional tone perhaps, addressed probably more to the “hearts” of the three judges of the panel of the appeal court than to their minds (of course these arguments have deep legal reasoning behind them and also aim to the minds of the judges). 2) Unilateral and coercive restructurings "Argentina undertook a 'unilateral and coercive approach to [its] debt restructuring, rejecting practices that have allowed other '[sovereign bond restructurings' to be “resolved quickly, without severe creditor coordination problems, and involving little litigation.” I think there are three comments to make. First, I don´t agree that the restructurings were unilateral and coercive as there were consensual and voluntary agreements with more than 92% of the holders of Argentine debt in default. The defaults of sovereign debt and moreover a continued lack of payment and prolonged debt restructurings based for example in a denial to resolve the default for three years, as it was the case of Argentina, present very difficult options for the holders of said debt. Those difficult options are based on very weak contract rights under all sovereign bonds to sue and collect on the eventual favorable judgments they may obtain because sovereigns' assets are protected by the FISA and therefore attaching sovereigns' assets has proved to be a mission "almost" mission. The cases against Argentina is a clear evidence given that after ten years [9]no plaintiff has been able to collect on the more than 500 existing judgments. This aspect, coupled with a lack of willingness to pay during three years (from 2002 to 2005, and thereafter up and until 2010 when Argentina launched the second restructuring) and a lack of capacity to pay argued by the Argentine's government, balances the bargaining power towards Argentina as debtor of the defaulting bonds against its creditors. Therefore, without effective collecting weapons, the options of the holders of Argentine defaulting bonds against Argentina to force it to pay and/or restructure vanishes. But several times this is how a sovereign default may unfold and therefore the holders of the defaulting bonds, confronted with exchange offers from Argentina (such as the ones in 2005 and 2010), must make a business decision about whether or not they would participate in the swaps. But I don´t think that the acceptance of the restructurings by 92 per cent may be considered coercive as they still had the option of rejecting them and continue litigating. This is at the end of the day a business decision. The fact that almost eight per cent rejected the swaps is an indication that some of the holders decided not to accept them. By the same token, the restructurings were not unilateral as they were not imposed by the government of Argentina by changing through an unilateral act (i.e. without the approval of the exchange bondholders), the terms and conditions of the defaulting bonds. Through a unilateral restructuring, strictus sensu, the debtor either changes the terms and conditions of the bonds or eliminate them and issue new ones, without any acceptance from the counterparties, in this case the bondholders. This is absolutely illegal, but Argentina just did not do it. Another way to see it is an analysis of the term 'unilateral' from a negotiating standpoint. Usually a sovereign in default may approach its defaulting problem through two manners: (a) negotiating with its defaulting creditors (who act represented by steering committees for example) the terms and conditions of the new payment scheme or, (b) alternatively, designing a payment proposal unilaterally and with mere consultations with the defaulting bondholders. Both ways are legal, and the grounds for the effectiveness of either manner consist of a combination of political, economic, financial, strategic and legal reasons. In any event, it is up for the sovereign what decision to make in this respect. In the former case, the proposal would be "negotiated and bilateral", while in the former the proposal would be "not negotiated and unilateral". But from this standpoint, there is nothing illegal about which road the sovereign may elect to take. It would be a business decision from the sovereign, and the ultimate analysis would be the outcome of the offer and the eventual litigation associated with it.[10] I agree, though, that the practices used by Argentina have not helped to resolve the default quickly, but that was the explicit aim of the Argentine government back in 2005 due to its unwillingness to pay and its own alleged lack of payment capacity. Argentina, for political and economic reasons, decided not to resolve the default quickly. Again there is nothing legal or illegal about it, it is just that you need to deal with consequences, whatever they might be, and in the sovereign debt litigation and restructurings those are not clear and uniform. I also agree that due to the Argentine stance of (a) rejecting a bilateral negotiation with a steering committee and other bondholders, (b) deferring the solution of the default, (c) and more importantly, because of the significant initial losses of its restructuring proposal (when it was formally made almost three years after the default), there was large litigation, which, of course is taking several years and probably will take many more down the road. These are some of the consequences we mentioned as the business decisions that the sovereigns may take. In this sense, the Argentine restructuring debt situation is unique as the amount of the current defaulted bonds (summing up principal and interest) exceeds USD 20 billion. And here probably lies a big problem for the plaintiffs, because said amount appears impossible to be paid by Argentina, even in the hypothetical case the government would have “willingness to pay.” For example, if one compares the amount of the debt in default of Argentina, with the defaulting debts of all other countries that have defaulted on their external bonds, there is a difference of "several ceros" (the average of the previous holdout debts, excluding Greece, is around USD 200 million[11]). This means that NML and the other plaintiffs may have put themselves in a legal tramp, which is eventually obtaining favorable rulings, but unenforceable even if they win the discussion about the injunctions over the Bank of New York.[12] The consequence could be a lack of collection but with a potential new default (depending upon the appeal to the U.S. Supreme Court) that would prevent everybody from receiving their payments (exchange bondholders and judgment creditors). It is a gamble to force Argentina to pay their judgments (but ignoring that the "me toos"[13] would also sue under the same legal grounds so an actual payment of the NML ruling may not isolated from the other potential claims) instead of defaulting altogether if Argentina losses on all grounds. Argentina should issue a new exchange and then eventually reach an agreement with the remaining holdouts, which would be few if Argentina obtains favorable rulings regarding the injunctions on the Bank of New York.[14] 3) Pari Passu: Equal Rank Obligation and Equal Payment Obligation "In keeping with that approach, Argentina refused to comply with its explicit commitment to treat its “payment obligations” on the bonds held by Appellees “at least equally with . . . its other . . . unsubordinated External Indebtedness". I agree that the Lock Law[15] violated the traditional interpretation of pari passu (equal rank obligation). But the Court of Appeals went on by taking a new interpretation (equal payment obligation), of which there is a legitimate legal dispute. In this respect I am not sure about the legality of novel interpretation of the equal payment obligation. Continued litigation for sure on this topic.[16] 4) Capacity to Pay "The district court found as fact that Argentina had ample resources to pay Appellees, as well as the Exchange Bondholders, and that the balance of the equities overwhelmingly supported the remedy ordered." I don´t think this has been resolved that way definitively. Besides, even though we are talking about USD 1.47 billion (as the amount of the claim as of March 31, 2013 according to NML), which by itself is a huge enough, there exists the "me toos", who were already mentioned, that increases the debt in default to more than USD 20 billion (principal plus accrued interest). Out of this amount, 2/3 is subject to New York law, while the rest is subject to European and Japanese laws. But there is a claim filed by more than 50.000 individual Italian bondholders (for more than 1.5 billion) before the arbitral tribunal of the World Bank (ICSID), whose representatives have indicated that they will enforce the lauds in the New York courts. Thus, almost 90 per cent of the defaulting debt will be subject to the jurisdiction of the New York courts. This increases the likelihood of a "rush to the courts" from a significant number of "me toos" if NML is paid, which puts in danger the finances of Argentina, as it has less than 40 billion in reserves at the Central Bank. The NML brief refers to this point but with an interesting degree of ambiguity, trying, probably that this topic does not turn into something relevant. They mentioned that the eventual claims from other hold outs are a matter of different cases and whose outcomes may refer to the NML decision. If NML refers to cases in New York they are exactly similar to its case.   5) Right to reject the large "haircuts" "The Court further held that Appellees “were completely within their rights to reject the 25-cents-on-the-dollar exchange offers” that Argentina had made in 2005 and 2010." I think we need to discuss three points relating to this paragraph. First I agree that under New York law a voluntary exchange (restructuring swap) as the two ones carried on by Argentina, the holders that desire to holdout from them maintain such right, which may not be impaired. Therefore a voluntary and bilateral restructuring may not be converted into a "coercive and unilateral" one.  Second, this defense is of course a self-acceptance that the Argentine debt exchanges were not coercive and unilateral. And third, that the real "haircuts" suffered so far by the exchange bondholders are not 75 cents on the dollar as argued by the NML brief. The reason for this allegation is that Argentina has paid, in addition to principal and interest, significant amounts of money on account of the so called GDP warrants, which are financial derivatives that give the bondholders the right to receive additional amounts if Argentina grows more than 3.3 per cent per annum. Since Argentina has effectively growth more than that percentage during several years after 2005, the real losses are lower. In fact, the losses may only be 15 per cent. 6) The new Argentine proposal contemplates losses of 85 per cent "Argentina offers to eliminate those obligations in return for new, deeply-discounted, potentially unenforceable, and unmarketable paper, payable decades hence. Indeed, according to Argentina’s own math, those new securities would be worth less than 15% of what Argentina owes on the FAA Bonds.” I think the explanation is correct because against a ruling of USD 1.47 billion (due to accrued interest since November 22, 2012), in cash in one installment, Argentina offered the bonds mentioned by NML, and therefore the proposal is below the judgment amounts. Argentina, however, was never in position to make a payment proposal with a value higher than what was offered in its proposal. The reason is the application of a clause included in the terms and conditions of the exchange bonds denominated "Most Favored Creditors.”[17]. Any offer with better terms to plaintiffs, would need to be offered to the exchange bondholders. Who would pay that bill? 7) Contempt Threat "Argentina’s response manifests yet again its contempt for its obligations, the laws of the United States, and the orders of U.S. courts....Argentina’s counsel declared that Argentina would not “voluntarily obey” any order “other than” the one it proposed. This is exactly how Argentina has dealt with creditors for the last decade: unilaterally dictate pennies-on-the-dollar “exchange offers,” and threaten to pay nothing if the offer is rejected. Argentina has now treated the Court the same way; that is the very antithesis of “good faith.” Regarding this paragraph one should distinguish the substance from the form. From a substance standpoint, Argentina has legal limitations to offer holdouts better conditions than the 2005 and 2010 restructurings. Additionally, Argentine counsel received political instructions not to make a better proposal as well. On the contrary, if one looks at certain forms used, perhaps certain words expressed by Argentina counsel in the hearing that took place in February 27, 2013[18] probably were not necessary and the cause was the "heat" of the moment. But the legal limitations do exist. 8) Is it the best strategy by NML? The strategy probably will not get NML to where they want: get paid, all and now. Why? Because Argentina does not have the financial resources to deal with the 20b of claims. The average judicial claim collected through courts against sovereigns (from Peru to Brazil, touching Africa) is USD 200, several ceros lesser. We still believe that the discussion of the ratable payment[19] will favor NML, but that there are legal uncertainties about the decision on the injunctions and may not rule out that the Bank of New York is not enjoined by them.

CONTACT INFORMATION:

Eugenio A Bruno

Garrido Law Firm

eab@garridolawfirm.com

Tel 00 54 11 4 850 4000

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[1] For a discussion and analysis of this case please see my upcoming book “Sovereign Debt and Sovereign Debt Restructuring”, Eugenio A Bruno, Globe Law and Business Ed. London, 2013 as well as my article “Argentina Sovereign Debt: Inside the judicial labyrinth and how we may leave it, but not yet”, Eugenio A Bruno, SSRN, April 22, 2013. The lower court case is NML Capital Ltd. v. Republic of Argentina, 08-cv-06978, U.S. District Court, Southern District of New York (Manhattan). The appeal is NML Capital Ltd. v. Republic of Argentina, 12-00105, U.S. Court of Appeals for the Second Circuit (New York).

[2] Financial Times, March 31, 2013, “Argentina hints at payment rerouting”, Jude Webber.

[3] Chapter “Argentina: effects of the pari passu clause on future sovereign debt restructuring”, book “Sovereign Debt and Sovereign Debt Restructuring”, Eugenio A. Bruno, Globe Law and Business, London, 2013.

[4] See not 4 above.

[5] See note 2 above.

[6] See note 2 above.

[7] NML Capital Ltd. v. Republic of Argentina, 08-cv-06978, U.S. District Court, Southern District of New York (Manhattan). And NML Capital Ltd. v. Republic of Argentina, 12-00105, U.S. Court of Appeals for the Second Circuit (New York).

[8] See note 7 above.

[9] The first judgment against Argentina was granted by judge Thomas Griesa on April 5, 2003.

[10] In an upcoming, new paper we will discuss which way is better depending upon the grounds of each and the purpose the sovereigns in default desire to reach.

[11] Book “El Default y la Reestructuración de la Deuda”, Eugenio A Bruno (Nueva Mayoría, 2004).

[12] See note 1 above.

[13] The term “me toos” refer to other holders of Argentine defaulted bonds with the ability to sue Argentina under those bonds.

[14] See note 1 above.

[15] See note 1 above.

[16] See note 1 above.

[17] See note 1 above.

[18] U.S. Court of Appeals Hearing, NML Capital Ltd. v. Republic of Argentina, 12-00105, U.S. Court of Appeals for the Second Circuit (New York).

[19] See note 1.