Comments on: Why Argentina’s likely to beat Elliott Associates A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: anoldbanker Wed, 01 Aug 2012 18:42:55 +0000 Argentina would like you to believe that this case has “enormous consequences” and “significant waterfall effects”, but the reality is far more prosaic.

The problem for the Kirchner regime is that their tactics and goals are incompatible with their bond agreements. The regime would like to simply walk away from its obligations to bondholders who were unwilling to accept the biggest “haircut” in history, but that doesn’t work when your bond agreements have strong pari passu language combined with a lack of collective action clauses (CACs).

The appellate panel is unlikely to be fooled by claims of Argentina and the assistant US attorney that the sky will fall if the panel upholds the district court. Virtually all New York-law governed sovereign bonds now contain CACs, and more importantly Argentina remains an aberration among sovereigns in dodging judgments that it has more than ample means to pay. The circumstances of this case will not be repeated.

The panel should also have no problem finding that Argentina breached its obligations. Years ago Argentina itself asserted that pari passu would be breached if a law was enacted to differentiate among creditors – and the regime then did exactly that.

Invoking the FSIA in this situation is the reddest of herrings. Argentina comprehensively waived immunity under its bond agreements, and US courts have well-recognized powers within the FSIA to order equitable relief. The specific performance ordered by Judge Griesa places no restraints upon Argentina’s assets, especially those outside his court’s jurisdiction. The FSIA does not grant immunities, it restricts them, and as Judge Raggi rightly observed, the lower court’s order has nothing to do with the FSIA’s limited immunities as to execution.

MrRFox and realist50 are undoubtedly correct that the order presents no special difficulties for BoNY. The great mystery of course is what Argentina will do, and its counsel declined to answer that question.

If a foreign sovereign enjoys the benefits of US capital markets but then disdains the judicial system on which they are built, should that sovereign still enjoy unencumbered use of the US payment system? Of course not.

By: realist50 Wed, 25 Jul 2012 22:28:43 +0000 I’ll second the thought of MrRFox’s last paragraph. I assume the answer here is that BoNY would hold the money as trustee until a court told it what to do.

FISA adds a layer of complexity to the issue for sovereigns, but this sort of issue arises all the time when a borrower defaults/goes into bankruptcy. Even if BoNY as trustee passes on the payments to bondholders, for a non-sovereign borrower there’s well-established bankruptcy law concerning the ability of the bankruptcy trustee to recover cash from creditors who received preferential payments and what constitutes a preferential payment. It can take some time and legal expenses to figure out, especially in the case of a company like MF Global with lots of activity and shoddy record-keeping. That said, other than the sovereign aspect, there’s nothing novel about U.S. courts working through how to deal with money leaving an entity when other creditors claim that those funds should be theirs.

By: LucaT Wed, 25 Jul 2012 20:35:32 +0000 Oh man!!

Are You saying that bonds issued under US law don’t have protection?

By: MrRFox Wed, 25 Jul 2012 18:28:39 +0000 This matter is heavily influenced by foreign policy/relations, much more so, it seems, than the ordinary application of commercial law, as FS touches on. For other reasons than contract law, the US government wants Elliott to lose. I’d rather see the government buy the loan and forgive it, if that’s what it wants, than see the law so tortured to attain a desired outcome. (But that kind of thinking is passé, it appears.)

OBTW: The piece IMO overstates the dilemma of the bank. There is a procedure to handle competing claims to an asset in the hands of a custodian who asserts no claim. This is actually not unusual, FS. I mean, come on ….

By: AlanVanneman Wed, 25 Jul 2012 17:59:43 +0000 Circuit courts of appeal have judges, not justices.