Now Argentina wants to negotiate with hedge funds. Is it too late?

June 18, 2014

If Argentina truly wants to resolve its debt crisis without defaulting on tens of billions of dollars in restructured bonds, its politicians had better stop giving speeches.

At a hearing Wednesday afternoon in Manhattan federal court, Argentina’s lawyers informed U.S. District Judge Thomas Griesa that Argentine officials “want to engage in dialogue” with holdout hedge funds that are owed $1.5 billion under Griesa orders upheld by the U.S. Supreme Court on Monday. But the judge, who has been presiding for more than a decade over litigation between Argentina and hedge funds that refused to exchange defaulted bonds, seemed more interested in a fiery speech on Monday night by Argentine president Cristina Fernandez de Kirchner, in which she said the country would not submit to “extortion” by the hedge funds; and by a second speech Tuesday by the Argentine economy minister, who disclosed plans to restructure bonds to avoid “attachments.”

Argentina counsel Carmine Boccuzzi of Cleary Gottlieb Steen & Hamilton tried to portray the speeches as political posturing, but Griesa said they suggested that Argentina was on the brink of violating U.S. court orders. He asked lawyers for NML and Aurelius Capital to draft a proposed order stating that if Argentina attempted to restructure its debt as the economy minister proposed Tuesday, it would be in violation of his previous orders. NML and Aurelius had wanted Griesa to authorize discovery on Argentina’s restructuring plan, which the judge didn’t agree to do. Nevertheless, Griesa’s comments at the hearing put Argentina on notice that Griesa plainly doesn’t trust the country’s leaders.

“I have to say, the speech of the president was unfortunate,” Griesa said. “It was more than a political speech … That really does not give me confidence in a good faith commitment to pay all of the obligations of the Republic.”

NML counsel Robert Cohen of Dechert baited the judge about Cleary as well. At a hearing earlier this month, he reminded Griesa, Cleary lawyers had assured the judge that Argentina was not planning a restructuring to get around his orders, yet on the very night the Supreme Court upheld the orders, Argentina’s president delivered a speech outlining the plan. “The representations that were made about there being no plan were obviously untrue,” Cohen said.

Griesa — who returned from vacation to preside over the last-minute hearing, which was requested by NML — didn’t respond to Cohen’s assertions, and seemed to go out of his way during the hour-long proceeding to praise Carmine Boccuzzi of Cleary, who was arguing for Argentina. But Cohen’s bald accusations that Boccuzzi and his partner Jonathan Blackman have misled Griesa are a sign of how hard NML is willing to squeeze Cleary’s client. Attacking the ethics of Argentina’s lawyers is the hedge fund’s version of political posturing. (I asked Cleary Monday whether an Argentine debt restructuring would be consistent with its representations to Griesa; a firm representative emailed me a statement: “As stated on the record in the district court and to the Supreme Court, Argentina will not evade any rulings and will comply, although that means Argentina faces, objectively, a serious and imminent risk of default.”)

The hearing before Griesa didn’t really do much to clarify what’s going to happen next in the Argentine bond crisis. Griesa didn’t dig into whether a restructuring of the exchange bonds would constitute a default on that debt. (Three lawyers familiar with the litigation have told me it would.) Nor did Griesa ask whether such a default would expose Argentina to new liability to exchange bondholders that have, in the main, been its allies against the hedge fund holdouts. The judge didn’t say anything about Boccuzzi’s representation that Argentine officials are coming to New York to negotiate with the hedge funds.

And even though Griesa asked for a draft order that Argentina’s contemplated restructuring would violate court orders, he wondered what good another judgment against Argentina would do for the hedge fund holdouts.

“We will have another judgment and the Republic will do what it has done to all of the judgments so far — ignore it,” the judge said. “We do not want another charade.

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