On Dec. 2, Argentina is scheduled to make a $42 million interest
payment to some bondholders who exchanged defaulted sovereign
debt for new bonds in one of the country's restructurings in
2005 and 2010. Exchange bondholders are due another $3 billion
on Dec. 15 and between $100 and $200 million on Dec. 31.
Argentina's highest officials, including its president and
finance minister, have vowed to make those payments, despite a
ruling last month by the U.S. Court of Appeals for the 2nd
Circuit that under the equal footing provisions of Argentina's
contracts with sovereign debtholders, the country can't pay
exchange bondholders before it pays the distressed debt funds
that refused to participate in Argentine restructurings.
Those proclamations are an affront to U.S. courts, District
Judge Thomas Griesa said at a hearing Friday in federal court in
Manhattan. And considering that Argentina agreed to submit to
the jurisdiction of New York federal courts when it entered
contracts with bondholders, Griesa said, the country is playing
with fire if it continues to defy the directives of those very
courts. Griesa has presided over years of litigation between
Argentina and the distressed debt (aka vulture) funds, including
NML Capital and Aurelius. He's entered billions of dollars of
judgments for the vulture funds, only to see Argentina
steadfastly refuse to pay up. On Friday, for the first time that
I can remember, Griesa did more than express frustration with
the recalcitrant republic. According to a transcript of the hearing, the judge flat-out threatened Argentina.
"If -- and I emphasize if -- there is any thought on the
part of the Republic to defy and evade the current ruling, then
that thought should be seriously reconsidered and set aside,"
Griesa said. "If it turns out as a fact that the Republic has
some intention of evading the Court of Appeals ruling, our
courts are not helpless. I think the Republic should realize
that the record of defiance of judgments already entered is ...
beginning to be viewed very negatively, and that is certainly
evidenced in the Court of Appeals discussion. And steps can be
taken, which I will not try to discuss now, but steps can be
taken to sanction any misconduct by the Republic of the kind I
am talking about, which will not simply amount to allowing the
Republic to disobey judgments and rulings. There will be means
of dealing with that."
As an initial matter, the judge said, he will decide whether
to continue a stay of his rulings from earlier this year, which
enjoined Argentina from paying exchange bondholders before the
distressed debt funds. Argentina's lawyer, Carmine Boccuzzi of
Cleary Gottlieb Steen & Hamilton, argued that the 2nd Circuit's
opinion isn't the last word on the equal footing matter, since
Argentina has already requested en banc review and can proceed
to the Supreme Court if that's denied. NML's lawyer, Theodore
Olson of Gibson, Dunn & Crutcher, pointed to Griesa's original
stay order, which said that the stay would remain in place until
the 2nd Circuit issued a mandate. Olson said the stay should be
lifted before the December bond payments are due so that
Argentina can't pay exchange bondholders without also paying his
client and other distressed debt funds.
Griesa left the question open and ordered immediate
briefing, to be completed by the end of the month, on how much
Argentina must pay the vultures in connection with the scheduled
December payments to exchange bondholders. After the briefs are
in, he said, he'd entertain NML's motion to lift the stay.
The judge said he'd also consider briefs by exchange
bondholders, though he took exception to an assertion by Sean
O'Shea of O'Shea Partners, who represents a group of exchange
bondholders, that his clients were "being held hostage" by the
2nd Circuit's ruling. Standard & Poor's downgraded Argentine debt after the appellate decision; the downgrade, in turn, led
to a decline in the market value of the exchange bonds. O'Shea
argued that if Griesa lifts his stay and the injunction takes
effect, exchange bondholders will suffer.
If that's true, Griesa replied, bondholders should blame
Argentina, not him or the 2nd Circuit. "The Republic doesn't
have to stop paying the exchange," the judge said. "They don't
have to stop for a minute, as long as they make a payment, an
appropriate payment, to the plaintiffs. Now, if you want to get
the exchange people paid, talk to the Republic."
Overall, Griesa seemed invigorated by the 2nd Circuit's
affirmance on the equal footing clause. He was downright feisty
with Argentina counsel Boccuzzi, who offered indirect answers to
the judge's direct questions about whether Argentina intends to
disobey the 2nd Circuit's directive. "Now, if we have the
president of Argentina and the minister of the economy saying
that that will not be complied with, that is a serious matter,"
Griesa told the Cleary lawyer. "I want to address that now, and
the court is not helpless in dealing with such positions if they
Boccuzzi said that the Argentine officials were simply
trying to calm the market and were not "thumbing their nose at
Your Honor or the orders." Argentina merely intends to litigate
the equal footing issue to the highest possible court, he said.
Griesa replied that Boccuzzi's assurances didn't match the
quoted declarations of Argentine politicians. And considering
his long experience with Argentina, he said, he has reason to
doubt the country's intentions. For years, Griesa complained,
Argentina has enjoyed the service of U.S. courts, yet it has
refused to abide by rulings against it. This time, Griesa said,
the courts weren't going to stand for defiance.
"Consequently, I would hope that the Republic will get back
on the track ... of litigating fairly in our courts," the judge
said, "and certainly, as to this new ruling, (will make) sure
that it is complied with and that there is no doubt about
compliance with it." Griesa told Cleary that he wanted Argentina
itself -- not just the law firm -- to submit an affidavit
verifying that it would comply with his ruling on the stay
order. Boccuzzi said he would obtain that affirmation.
The war of words between Argentina and the distressed debt
funds, meanwhile, continued Monday with an open letter to Paul Singer, the principal of NML's parent, Elliot Capital, from
Argentina's ambassador to the United States. "Mr. Singer and
friends: we Argentines have confronted you for some time,
especially this year, and we will continue to do so," the letter
said. "The entire world is watching ever more closely how this
confrontation will evolve: a confrontation between a law-abiding
country and government that honor their debts and pay them as
they are due, and a group of speculators who insist on flapping
their wings like vultures. Yet things are changing. The vultures
no longer soar over a moribund Argentine economy, and the rest
of the world is becoming aware that, in order to recover from
the crisis, it needs real investors and entrepreneurs. Not
That sounds pretty defiant to me. There's less than a month
to go before Griesa decides whether to lift the stay on the
injunction barring Argentina from paying exchange bondholders.
If this letter is any indication, Argentina isn't disposed to
pay the distressed debt funds, regardless of the judge's
decision. We may yet get a chance to see exactly what Griesa has
in mind as a sanction.
Argentina counsel Boccuzzi didn't return my call for comment
and a representative of Elliot Capital declined to comment.
(Reporting by Alison Frankel)
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