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Now things are getting a bit crazy - Argentina style.

posted by Mark Weidemaier

The dust is nowhere near settled after the Second Circuit's blunt affirmance of the injunction against Argentina. Still, there are valuable preliminary takes by Felix Salmon, on FT Alphaville by Joseph Cotterill, and here on Credit Slips. Argentina isn't staying quiet either. The initial reaction to the Second Circuit's ruling is... well, not meek compliance. Bloomberg reports that Argentina plans to reopen the debt exchange - offering holdouts the same terms as were offered to participants in the 2005 and 2010 exchanges, and also offering exchange bondholders the chance to swap their bonds into securities governed by Argentine law. According to the report, a bill to this effect will be sent to Congress tomorrow (August 27).

Um, wow... The injunction clearly extends Argentina's ratable payment obligation to any payments it might make under new, Argentine-law bonds (par. 2a). That part of the order has been stayed, for now. But the injunction also forbids Argentina to take any steps "to evade the directives" of the injunction or to "render it ineffective" (par. 4), and this part of the order has not been stayed (caveat below).* The swap, assuming it happens, seems close to the line. When paired with the country's steadfast refusal to pay NML, it certainly looks like a preliminary step towards evading the order by allowing payment to take place outside the United States (thus bypassing financial institutions who would otherwise risk contempt if they processed payment).

The devil is in the details, I suppose. Maybe the swap can be portrayed as consistent with a future in which Argentina complies with the injunction. Still, my initial thought is... why? With another possible petition for en banc review - and conceivably a request for panel rehearing (although really, why bother?) - plus a second petition for certiorari, it could be late 2014 or even 2015 before the case is finally resolved. And as long as the stay remains in place, Argentina is free to pay exchange bondholders while making NML cool its heels. But this latest seems really, really provocative. If I'm NML, I file a motion to lift the stay. Now.

*Caveat: The original injunction imposed the "no workaround" requirement only during the pendency of an appeal. The amended injunction (linked above) doesn't have that time limit; it forbids efforts to evade the injunction, whenever they occur. However, when the district court lifted the stay (in November), the Court of Appeals reinstated it with respect to "the November 21, 2012 orders." Although this probably isn't what the Court of Appeals had in mind, this may have stayed the operation of the "no workaround" provisions. If that's true, Argentina can't commit a violation now. The point is the same, however. The timing seems awful, and it might be provocative enough to convince the court to lift the stay.

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