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About That June 30 Payment...

posted by Mark Weidemaier

So, Argentina lost its bid to have the Supreme Court overturn the injunction. It also has a payment due exchange bondholders on June 30. Recall that the Second Circuit stayed enforcement of the injunction so that the Supreme Court could consider Argentina's petition for certiorari. Is that stay still in place? Can Argentina get more time (until after June 30) by asking the Supreme Court to reconsider the denial of certiorari? And if not, does the country have any good options? There has been a fair bit of speculation about these questions.

On the stay and Argentina's procedural options: There has been speculation that Argentina can buy time by asking the Supreme Court to reconsider. Readers with a firmer grip on appellate procedure, please weigh in. But this isn't Argentina's call to make; it will need some help to keep the injunction from taking effect. Supreme Court rules allow the country to ask for reconsideration and provide that such a request stays the issuance of the Supreme Court's mandate (in practical terms, the Court's final disposition of the appeal).* But the Supreme Court did not create the stay that keeps the injunction from taking effect. That stay exists because the Second Circuit says so, and what the Second Circuit creates, it can take away. Indeed, NML has filed papers arguing that the stay is already over. And even if this argument is wrong, the Second Circuit is not obliged to keep the stay in place.

In her address Monday, President Cristina Fernandez de Kirchner struck a defiant tone but also signaled some willingness to negotiate. But negotiations are complicated by a number of factors, most notably the fact that Argentina will likely want a global settlement that accounts for all the "me too" claimants - bondholders similar to NML who have not yet brought claims for NML-style injunctive relief. That kind of deal will take time, which is precisely what the country may not have. 

So, what to expect? I don't think it appropriate to speculate on the many ways Argentina might try to get around the injunction. Suffice it to say that I have not yet heard a concrete description of a plan for paying exchange bondholders that doesn't violate the injunction. Here (registration at FT Alphaville required) is the best description I've seen of the country's current statement of its plans - basically offering to let everyone swap into local-law bonds to be paid in Argentina. I may lack subtlety, but that sounds like a violation to me. (The injunction quite plainly applies to any payments made on bonds issued in a swap - see par. 2a.) And even if Argentina is willing to thumb its nose at the US courts, most plans to defy the courts would require the participation of financial institutions that have better things to do than expose themselves to the risk of contempt sanctions. And anyway, it isn't clear that such a plan can be put in place by June 30. If Argentina wants to make the June 30 payment,** its best bet is to find a way to keep the stay in place - a fact noted in the FT Alphaville article linked above. But how?

On this question, your guess is as good as mine. Better, probably, as I don't have any good guesses at all. Conceivably Argentina might pay NML some of what it owes in exchange for NML's consent to the June 30 payment, thus creating more time for negotiations. On the other hand, it's not clear why NML would agree to such an arrangement unless it believed Argentina had a credible plan to defy the US courts or was genuinely willing to default rather than give in. Surely Argentine officials see default as the worst option. Right? Right??? Sigh. S&P isn't so sure.

* There is no formal mandate here, because the case is on appeal from a federal court, but this is a detail.

** I mean really make the payment - as in, transfer funds that are received by exchange bondholders. As opposed to sending money to Bank of New York Mellon (which if it accepts the funds will not pass them on) and claiming this discharges the country's obligations.


Oooooh, ** is intriguing--it's really cute. RoA's only obligation under the indentures is to pay the indenture trustee, and then it's the indenture trustee's problem about who to pay, which probably means that the indenture trustee goes to NY state court seeking advice under an Article 77 proceeding. The trustee has no authority to pay anyone other than the bondholders under the indenture, which means it has no authority to pay the non-exchanging bondholders. And the payment is no longer property of the RoA, so I don't think there's any ability to execute on the payment in the hands of the indenture trustee. Booting the problem to the indenture trustee (which probably doesn't even require the indenture trustee's consent, and if they refuse, they might be liable to RoA for consequences of the default) might accomplish exactly what Argentina wants, which is to have NY state courts rule on the issue, while avoiding a default and avoiding paying the holdouts.

SCOTUS Rule 44 allows for a petition for rehearing of a denial of cert, but Rule 16 (3) provides that the original "order of denial will not be suspended pending disposition of a petition for rehearing except by order of the Court or a Justice." Also, counsel filing the petition has to make the usual certification that it is not filed for purpose of delay. I'd say that pretty much bars this procedural move from permitting the June 30 payment.

Rule 44 also mandates that the grounds of the petition for rehearing "shall be limited to intervening circumstances of a substantial or controlling effect or to other substantial grounds not previously presented.". Taken all in all, I doubt you could find anybody willing to sign that petition.

Mark: Thanks, and agreed. The grounds for rehearing are pretty much limited to "new information we couldn't (or forgot to) tell you before," and that would be mighty hard to argue here. Not that it matters, as the date SCOTUS issued its mandate didn't control the stay in the first place. The stay has now vanished and the injunction is in effect unless a new stay is granted.

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