Comments on: The consequences of Elliott vs Argentina A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: realist50 Wed, 28 Nov 2012 03:45:46 +0000 “And never mind emerging-market sovereigns: what would happen to standard US contracts, where a company might choose to pay one creditor while stiff-arming another?”

However this ruling impacts sovereign issuance, the impact on US corporate debt is essentially nil. These issues are why we have a bankruptcy code, bankruptcy courts, and corporate law concepts such as the duty to creditors once a company is in the zone of insolvency. The key difference in the case of Argentina is that the debtor is a sovereign.

As for your specific example that I’ve quoted above, that would be a textbook example of a preference payment, if the payment was made within 90 days prior to a bankruptcy filing (1 year if paid to a company insider), with the potential for a bankruptcy trustee to clawback the payment from the creditor to equalize treatment with similarly situated creditors.

By: QCIC Tue, 27 Nov 2012 20:58:30 +0000 Indeed +1. Argentina needs higher interest rates, not US legal shielding.

By: anoldbanker Tue, 27 Nov 2012 00:52:50 +0000 You are guilty of hyperbole in attempting to inflate relief granted by US courts in very specific circumstances into a major policy event.

CACs will in due course be refined to accomplish what is intended of them. In the meantime, what other sovereign borrower:
i) has allowed a default (with non-tendering bondholders, the Paris Club and ICSID awardees) to persist for more than a decade ?;
ii) foisted a ‘haircut’ far greater than required for debt sustainability upon its bondholders ?;
iii) refuses to negotiate, and indeed through word, deed and even by statute repudiates the debt not voluntarily tendered ?; and
iv) has a head of state that insults and belittles the courts of a jurisdiction where billions were borrowed, while declaring a firm intention to breach any unfavorable order ?

This is not a precedent, it is an aberration. Sovereign borrowers and lenders alike should be thankful that skillfully aggressive creditors with deep pockets exist to restore order when psychopathic regimes go rogue.

Do you seriously advocate that sovereigns should be entitled to use unilateral, targeted repudiation, in defiance of the governing law of their borrowing contracts, as a negotiating tool ?

As Judge Griesa observes, everyone would benefit if Argentina complies with its original promises and many subsequent court orders – even Argentina, by drastically reducing its cost of capital. But if the country’s government considers it more politically expedient to defy the world, then it is just that they should not be allowed to freely utilize the capital markets and payment systems of the jurisdiction whose laws and courts they so disdain. Unfortunately the latter seems more likely, with or without your apologia.

By: DCWright Mon, 26 Nov 2012 23:52:17 +0000 +1 to AngryInCali

By: AngryInCali Mon, 26 Nov 2012 20:39:24 +0000 No, the solution is for countries to issue bonds in their own currency or under the jurisdiction of their legislatures. If that had happened, there would be no problem with holdouts. Of course, the interest rates would probably have been higher, but that’s the idea!

The issue of orphan issues getting taken over by vulture funds is irrelevant. Why would the markets react irrationality regarding the creditworthiness of a country if all the other bonds get restructured peacefully? If the pari passu and CAC clauses are both in sync as far as what bonds they apply to, there’s no real problem.

Once again, the problem arises from people designing schemes to avoid paying for risk. This was the case with those AAA-rated CMO/CDOs that weren’t nearly so safe.

Argentina chose to issue bonds in dollars, under US law. Instead of allowing this method to be undermined to the detriment of bondholders, let the ruling stand, and let other countries assess the risk when they issue bonds next.

By: Hippopotamax Mon, 26 Nov 2012 19:10:23 +0000 The questions you’re saying need to be answered are not questions for SCOTUS or the 2nd Circuit en banc, they are legislative questions that need a legislative answer. But since our legislature is completely broken, who can say where the best alternative place is to get an answer?