Comments on: Elliott vs Argentina: The Second Circuit’s dangerous game A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: traducator daneza Mon, 29 Sep 2014 13:52:09 +0000 There isn’t a making your way around the possibility that eco-friendly, puppy pleasant shoes are high-priced in comparison to the alternative kind. But as a swelling heart and soul, you ought to consider this value onto your satisfaction. Individually, I’d rather bleed a bit of money when compared with wear an issue that bled an increased amount of another thing..

By: Nameless Wed, 06 Mar 2013 04:42:40 +0000 @Kaleberg Without going into too much detail, the situation here is that, when original bonds were issued, the contract between Argentina and bondholders contained an explicit promise not to issue any debt that would be senior to these bonds (and, therefore, that all future creditors would have equal or lower standing than these bondholders): the so-called “pari passu clause”. Argentina violated it in 2005 (and then again in 2010) when it issued exchange bonds which were, by Argentinean law, designated senior to all remaining pre-exchange bonds.

Argentinean government thought that they could get away with it because, by U.S. law, holders of old bonds had virtually no recourse: they could not attach the property of a foreign government. Until Elliot’s lawyers managed to find a loophole by interfering with the flow of money from Argentina to holders of new bonds through New York banks.

By: Kaleberg Wed, 06 Mar 2013 02:23:14 +0000 Now that I think of it, it is unusual for a bankruptcy court to consider all creditors equal. Isn’t the usual rule that contracts with corporations for goods and services are enforced, but contracts with individuals or unions for labor are irrelevant? I’m not sure what law is being used in this case, but if it attempts to give all creditors equal standing and allow one creditor to interfere with a settlement made by another, I can see serious problems in the next round of airline and municipal bankruptcies. There may be a more dangerous precedent being set here than I had originally thought.

By: Kaleberg Wed, 06 Mar 2013 01:56:44 +0000 My guess is that this is going to hurt NYC as a financial center more than Argentina. It will probably take about ten years for anyone to notice, but the current global financial system has its discontent. For example, everyone in southeastern Asia remembers the IMF crisis of ’97, and they still resent it. As the US actively works towards its own decline, there are lots of others willing to pick up the pieces.

By: DavidTrevitt Tue, 05 Mar 2013 21:49:46 +0000 Argentina arguably did not have the current resources in 2001 to meet all its obligations in a timely manner. However for the past several years it clearly has the cash flow and reserves to honor its obligations, particularly to those creditors including the United States that have not received debt service for more than 11 years.

The cost and consequences to Argentina of continued default are far greater than the alternative to pay its obligations and return to the norms of the international financial system. What opportunities they are missing… Why do I see Argentina as a dagger pointed at the heart of Antartica?

By: Nameless Tue, 05 Mar 2013 20:18:53 +0000 “they also have to have at least one eye on the ability of New York’s financial markets to function effectively. And it’s hard to see how they can do that if they’re preventing a sovereign nation’s best attempt to extricate itself from default.”

This sovereign nation’s best attempt to extricate itself from default would be to pay Elliot what it owes. Second Circuit has no intention to prevent that or to interfere with that. If the sovereign nation wants to dodge its responsibility, it’s their problem, and it should not be presented as something that U.S. courts must allow because it’s somehow necessary for the “financial markets to function effectively.”

By: anoldbanker Tue, 05 Mar 2013 16:07:47 +0000 @paripassuwatch, you raise an interesting point regarding whether injunctive relief is or should be an ‘enhanced judgment enforcement mechanism’, which Argentina’s counsel deems out of bounds.

The distinction seems meaningless. The US government’s application of trade sanctions against Argentina is an enhanced mechanism for enforcing dishonored ICSID awards. How else can one deal with a contumacious sovereign ?

The US and UK courts get it right far more often than not. Tomlinson’s dicta was in response to Kensington’s extremely aggressive plea for a global freezing order and injunction against unnamed and unknown third parties. Here, BoNY is in direct contractual privity with Argentina. The difference in scope could not be more profound.

I think we can at the least agree that Felix makes no sense whatsoever arguing that US courts should temper their enforcement of contracts out of deference to a regime that demonstrates no concern for basic norms of sovereign behavior.

By: paripassuwatch Tue, 05 Mar 2013 14:41:27 +0000 @anoldbanker

The literary citation is certainly much appreciated! Mine was as much for humor as anything else.

“The market’s willingness to finance Morales at four percent can only be explained as the triumph of diversification over wisdom.” Great point, I also find this quite interesting.

As to another point “To enforce the lower court’s order, those parties in concert or participation with Argentina need only refer to the small range of ISIN numbers identifying the exchange bonds, and put a hold on payments pending either the certification required of Argentina or instructions from the court. It is far easier than the attachments that they do every day.” With this point you almost prove too much. It is precisely because the solution is so much easier than attachment that it is worrisome. Also attachment gives us some really great headlines.

As to Tomlinson’s Dicta let us not pretend that it is unrelated. In a way it is a chronicle of a litigation foretold. It too was also part of the evolution of the Pari Passu litigation strategy. Kensington v. Congo came on the heels of Elliott v. Peru. Kensington was an Elliott subsidiary. There it sought to use an injunction to achieve what the judgments against the Congo could not. In 2006 it also sought to enforce its UK judgments in New York. One of the forms of relief requested was injunctive relief based on the Congo’s violation of the pari passu and negative pledge provisions in the loan agreement.

As you said yourself attachment is much harder while blocking parts of the payment system is relatively easy. Would a New York bank really risk helping Argentina if it faces contempt? It is precisely that ease that makes the injunctive relief an ‘enhanced enforcement mechanism’ giving something that the court’s final judgement never do.

Though perhaps you are right that the system does protest too much. One imagines that there are many ways that the market and those creating payment structures can react to this. Still it is interesting seeing this all unfold.

By: anoldbanker Tue, 05 Mar 2013 13:22:42 +0000 @paripassuwatch, the international payment system doth protest too much (if you will permit a more mundane literary citation).

To enforce the lower court’s order, those parties in concert or participation with Argentina need only refer to the small range of ISIN numbers identifying the exchange bonds, and put a hold on payments pending either the certification required of Argentina or instructions from the court. It is far easier than the attachments that they do every day.

The payment system issue should not be conflated with Tomlinson J’s dicta regarding the equities in a lower court opinion in an entirely unrelated case – one of the very few straws within attorney Blackman’s grasp.

The market’s willingness to finance Morales at four percent can only be explained as the triumph of diversification over wisdom.

By: paripassuwatch Tue, 05 Mar 2013 05:31:32 +0000 For some of us it is not really about Argentina. The other concern is with the payment system. This concern with a court’s overreach was well stated in Kensington v Congo with Judge Tomlinson stating: “I do not regard it as an appropriate exercise of my discretion, at any rate in the particular circumstances of this case, to make an order compliance with which can only realistically be achieved by coercion of third parties. I view with disquiet in the circumstances of this case a situation in which third parties are potentially exposed to penal consequences which could never be visited upon the defendant to whom the order is actually directed.” Perhaps it was said even better there than in NML.

Still @anoldbanker your point is taken about Argentina taking a gamble. Here we have one of the most skilled defaulters Argentina pitted against one of the savviest holdout creditors Elliott/NML. Indeed there is a lot of bluster. In her recent speech( FznzPa7yk) Cristina seemed to suggest that the expropriated grass is greener in Bolivia.

She stated ‘there is a great friend of ours, Evo Morales, who has even expropriated the grass and still gets lent money at around four percent’ however to be fair Argentina did expropriate the water (http://www.iarepor…rticles/20100818_9) even if it was in response to an emergency.

Still you have to love a case where US judges cite Borges and Argentine presidents cite Garcia Marquez. However I would rather that NML in its Labyrinth be lost trying to attach the grass in the Garden of Forking Paths, than it enjoining any participating bank in the forking paths of the international payment system.