Wednesday, June 18, 2014

Argentina/US: Update--US Supreme Court Does Not Want to Negotiate, It Wants to Be Paid US$907 Million by June 30

According to The Associated Press, authorities from Argentina will travel to New York City next week to negotiate with US hedge funds that are owed US$1.5 billion payment for defaulted bonds, a lawyer for Argentina said Wednesday (June 18).

Attorney Carmine Boccuzzi told Judge Thomas P. Griesa in Manhattan federal court that Argentina wants "to have a dialogue" with bondholders who refused to exchange their bonds for new bonds at a much lower value in the years after Argentina's economy collapsed in 2001.

His counterpart, attorney Robert A. Cohen for the bondholders, asked the judge for protection in the event Argentina follows through on threats to dodge the U.S. obligations.

Griesa reacted to Boccuzzi's remarks cautiously, saying: "You can talk about negotiating. Negotiation is fine. But, as a judge, what I want is a legal mechanism to prevent another situation where the Republic can simply laugh off a judgment."

They defiantly announced after a final appeal by Argentina was turned away by the US Supreme Court on Monday (June 16) that rather than comply with Griesa's orders, they will try to engineer yet another bond swap beyond the reach of US law.

COMMENT: What President Fernández does not realize is that the time for talk has come and gone, otherwise her government will go into default and not be able to use the US financial system for transactions. Period.

In her speech, President Fernández vowed to defy what she called extortion by the holdout bondholders led by New York billionaire Paul Singer's NML Capital Ltd. Yet, she said her government "will not default on those who believed in Argentina" by accepting the debt swaps. She also expressed hope that 100% of the holders of Argentine debt will agree to new payment plans, opening the door to negotiations.

Judge Griesa added:  "That does not really give me confidence in a good faith commitment to pay all the obligations of the Republic."

Fernández and Kiciloff said they cannot possibly pay the plaintiffs cash in full plus interest, as the US courts have required. 

The plaintiffs in the New York litigation represent about 1% percent of the $100 billion in debt that went into default more than a decade ago. Giving them the complete satisfaction the judge has ordered would end any hopes Argentina might have of reducing the $15 billion they say is owed to all the others whose pre-2002 bonds remain unpaid.

Argentina is required to make a payment on the defaulted bonds by the end of this month.

The Judge said he wanted banking institutions to know they are in violation of his orders if they allow Argentina to send money on June 30 to those who renegotiated their bonds without also paying the US hedge funds.

Argentina has until June 30 to pay a group of US hedge funds an initial down payment of $907 million on the $1.5 billion judgment. 

If the country fails to comply, it will be unable to use the US financial system to pay an equal amount to a much larger group of bondholders, provoking a disorderly default on their bonds, collectively worth upwards of $24 billion.

That larger group represents the 92% of investors who were already defaulted on once, and who exchanged their worthless paper for new bonds at a much lower face value.