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Injunction Math: Acceleration and the Incredible Shrinking Payment Percentage

posted by Anna Gelpern

If some or all of Argentina's Exchange Bond holders accelerate their bonds after last night's default, the amount Argentina owes NML et al. under the terms of Judge Griesa's injunction could plummet.

Here is the relevant language:

Such "Ratable Payment" that the Republic is ORDERED to make to NML shall be an amount equal to the "Payment Percentage" (as defined below) multiplied by the total amount currently due to NML in respect of the bonds at issue in these cases (08 Civ. 6978, 09 Civ. 1707, and 09 Civ. 1708), including pre-judgment interest (the "NML Bonds").

Such "Payment Percentage" shall be the fraction calculated by dividing the amount actually paid or which the Republic intends to pay under the terms of the Exchange Bonds by the total amount then due under the terms of the Exchange Bonds.

Before acceleration, the total amount due from Argentina on the Exchange Bonds is the total unpaid coupon (little x). If Argentina pays the Exchange Bond holders their full coupon before acceleration, the Payment Percentage it owes NML et al. is x/x=1, or 100% of the $1.5 billion or so currently due NML.

After acceleration, the total amount due from Argentina on the Exchange Bonds is full principal and accrued interest on whatever is accelerated, plus unpaid coupon on whatever is not accelerated (big X). If Argentina pays the Exchange Bond holders their total unpaid coupon after acceleration, the Payment Percentage it owes NML et al. is x/X, or a whole lot less than 100% of $1.5 billion.

To be sure, injunction math has not been the main driver of the parties' negotiating posture--last night's press conference suggests that Argentina is sticking to old exchange terms. But for what little it's worth, if people start accelerating, it might make sense to have a Payment Percentage calculator on the ready.


If Argentina pays zero, plaintiff gets zero. Griesa's miscalculation on the outcome of the chicken game is costing both actors dearly. A longer stay would have been better for all parties. But again, who would have predicted ex-ante this destruction of value. We'll see what he has to say tomorrow. The thriller continues.

Besides this fact, net positions of all interested parties have to be considered, regarding CDS holdings, non performing bond holdings, performing bond holdings, and holdings of other assets in some way or another correlated to the outcome. Some of their portfolios are really obscure. I guess that in ISDA meeting to be held tomorrow we will be having good clues of where is really standing each one of the involved.

I don't see Acceleration as a possibility, here's from the 2005 prospectus:

Default and Acceleration of Maturity
Each of the following are events of default under any series of debt securities:
(a) Non Payment. Argentina fails for 30 days after the applicable payment date to make any
payment of principal or interest on that series of debt securities;
(b) Breach of Other Obligations. Argentina fails to perform or comply with any other obligation
under the debt securities or under the indenture and Argentina does not or cannot cure that
failure within 90 days after it receives written notice from the trustee regarding that default;
(c) Cross Default. Any event or condition occurs that results in the acceleration of the maturity
(other than by optional or mandatory prepayment or redemption) of any of Argentina's
Performing Public External Indebtedness having an aggregate principal amount of
U.S.$30,000,000 or more, or Argentina fails to make any payment of principal, premium,
prepayment charge or interest when due on any of its Performing Public External Indebtedness
having an aggregate principal amount of U.S.$30,000,000 or more and that failure continues past
the applicable grace period, if any;
(d) Moratorium. Argentina declares a moratorium on the payment of principal of or interest on its
Performing Public External Indebtedness; or
(e) Validity. Argentina contests the validity of that series of debt securities.

a) seems not triggered as AR paid (interest on that series of debt securities), and the 'Non Payment' says nothing about the debt holder actually receiving the AR payment
b) maybe in 60 days will be triggered if Grizzly's order constitutes what is 'Other Obligations'
c) since neither a) and b) have been triggered, no cross possible for now
d) & e) AR clearly stated the opposite ('but they won't let it').

I am not a lawyer or anything, but to me it seems that a cross-default needs a trustee notice first and then 90 more days.

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