Should NML move to lift the stay?

An update on where matters stand in NML v. Argentina: I don't see it listed on the court's calendar on PACER, but the parties reportedly had a meeting scheduled for this afternoon with Judge Griesa to discuss Argentina's plan to let exchange bondholders swap into bonds governed by Argentine law. Whether or not the meeting happens, the more important question, as I noted in yesterday's post, is whether NML will ask the Second Circuit to lift the stay on the ratable-payment part of the injunction. Michelle Celarier at the New York Post reports that NML is considering doing just that.

As I said several days ago, if I were NML, my inclination would be to ask the Second Circuit to lift the stay. Doing so would jeopardize Argentina's ability to pay exchange bondholders at a time when it does not yet have a mechanism in place to circumvent the injunction. (I hate to sound so cynical, but Argentina has clearly announced that it won't comply.) Filing a motion to lift the stay also gives NML another chance to portray Argentina as a uniquely defiant and unsympathetic defendant. On the other hand, there is a potential cost to lifting the stay: the added urgency might highlight the significance of the case to the Supreme Court. Plus, the Supreme Court justice assigned to the Second Circuit could always re-impose the stay, taking away the leverage an order lifting the stay would give to NML.

Thus far, the Second Circuit has handled the case as if it wants to minimize the likelihood of Supreme Court review. First, both opinions characterize the case as involving a unique sovereign debtor and a unique pari passu clause. I don't think the court is very convincing in this effort. The impact of a precedent is settled by future litigation, not by judicial ipse dixit, and it's just not true that Argentina's pari passu clause is unique. Nevertheless, if the effort persuades the Supreme Court, the chances of review go down. Second, the Second Circuit has given Argentina all the process it could possibly want, including the current stay of the injunction. I'm speculating, but removing the stay might give the impression that the Second Circuit is trying to strong-arm Argentina into compliance.

NML's decision might be shaped by other considerations, too. Over at FT Alphaville, commenter arnoldbanker raises the intriguing possibility that the debt swap might also be designed to pave the way for an eventual settlement. That would represent a radical change of heart for President Kirchner. But perhaps renewed access to foreign capital markets is worth the price?

Comments

[Victor Wooten]

It is human nature to think wisely and to act foolishly.

[Rainer Manthey]

If I would be in NML' s shoes I would try very hard to have the stay in place until Kirchner has suffered a crushing defeat in the upcoming election. It is obvious that the violation of the intention of the order, not to change the payment system, aims to
induce the plaintiffs to rush to the courthouse and force Argentina into the corner so that Kirchner could claim the high ground of defending Argentina and its souvereign
actions. All true Argentines, proud and blind, would follow Kirchner to war against the arrogant evil power, aka vultures/US/all which do not agree with us.

[HHalifax]

Even if Kirchner is defeated the mood in Argentina to pay a vulture fund is militant across all parties. NML is lucky no one has taken a sniper rifle to their ownership. This case is starting to veer into the political, especially with the revelations that Elliot is a major purchaser of distressed Greek bonds, something that has caught the attention of the Europeans in a not good way for Elliot/NML. The idea that capital exchange mechanisms will veer compelled away from an US court control is emerging.

[Mark Weidemaier]

Anger at Elliott aside, it's an interesting question what impact the case will have on New York as a capital market for sovereigns. I'm inclined to think it will be modest but that, on the margin, issuers will have a slight preference for other jurisdictions until the NML case gets sorted out (if it gets sorted out). One problem with the remedy is that it is hard for intermediaries to price the risk of getting swept up in a similar injunction in the future. By nature, injunctive relief is pretty random. By contrast, it is usually pretty easy for an intermediary to know and control the risk of getting swept up in proceedings to enforce a money judgment.