Sunday, October 26, 2014

US/Argentina: EM Ltd. Files New Complaint Against Argentina Arguing That All Bond Holders Be Treated Equally

According to The Latin American TribuneEM Ltd., a hedge fund controlled by billionaire Kenneth Dart, has filed a new complaint against Argentina in its long-standing struggle for payment on defaulted debt, arguing that it should receive the same treatment as other holdout bond holders that won a 2012 court judgment in the United States.

In the complaint, assigned Thursday (October 23) to US District Judge Thomas Griesa in Manhattan (New York City), the hedge fund requests him to require Argentina to pay what it owes EM--$835 million--before making more debt payments to investors who accepted bond re-structurings.

“EM now seeks an injunction from this court that is the same as the injunction that was issued in NML v. Argentina,” the hedge fund said, referring to Griesa’s 2012 decision in favor of a group of holdout bondholders led by Elliott Management Corp.’s NML Capital Ltd unit.

The complaint states that Argentine President Cristina Fernández’s government has repeatedly stated that it will not pay EM the full face value of its bonds.

Dart, an American-born resident of the Cayman Islands, is known for reaching a profitable junk-bond settlement with Brazil’s government in the 1990s and for being the owner of the world’s largest manufacturer of foam cups and containers, 

Mason, MI-based Dart Container have argued that Argentine tax authorities have accused the company’s local unit of making irregular profit transfers abroad in violation of the country’s exchange controls and of funding anti-government protests.

COMMENT: During the course of  my roughly 50 years in professional life, I know of no country that has so consistently and predictably ignored decisions of US federal courts as has Argentina.

If there is any lesson to be learned it is that Argentina, in its proclivity to ignore US courts and pursue a history of national populist fiscal policies that uses circular reasoning to avoid paying its financial responsibilities.

knowing that US federal court bondholders will never be accorded the payments they are due, US courts should take whatever legal steps are available to neutralize Buenos Aires from ever participating in the US financial market in the future and isolate the country as one that refuses to pay its debts.

Argentina defaulted on roughly $100 billion in debt in December 2001--at the time the largest sovereign default in world history--amid a financial meltdown and economic depression.

More than 92% of Argentina’s creditors accepted steep haircuts in 2005 and 2010 debt re-structurings. Yet, a small group of holdouts that bought Argentine debt in the wake of the 2001 default have refused to accept the swaps and are continuing to seek 100 cents on the dollar for their bonds.

In 2012, Judge Griesa ordered Buenos Aires to pay NML and other litigants more than $1.3 billion. 

Argentina’s appeal of the decision reached the US Supreme Court in June, but the justices declined to hear the challenge.

As part of that 2012 judgment, Griesa issued an injunction--based on a clause in the bonds that states that all bondholders must be treated equally--that bars Argentina from paying the exchange bondholders before settling with the holdouts, which Buenos Aires terms “vulture funds.”

In refusing to settle, Fernández’s government has warned that a decision to make full payment to the NML-led group of hedge funds would lead other holdout bondholders to demand the same, creating a potential liability of some $15 billion, equivalent to roughly half of Argentina’s foreign-exchange reserves.

The origins of the debt problem go back to Argentina’s 1976-1983 military regime, which presided over a 465% expansion in public indebtedness.

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