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Escalating to Nowhere?

posted by Anna Gelpern

Here is the proposed law rerouting payments under the restructured, now-defaulted Argentine bonds away from New York. Contrary to reports, the big news is not the swap, but the unilateral attempt at firing Bank of New York Mellon and substituting Banco Nacion in Buenos Aires (or an alternative, if voted by the bondholders). Bondholders could then show up in Buenos Aires or wherever Nacion sends their money to get paid. The proposal would also reopen the 2010 swap to the restructured bondholders and the remaining holdouts.(HT Vladimir WerningKatia Porzecanski) *Correction/Clarification*: Everyone would be invited to go into the swap on 2010 terms under Argentine law and jurisdiction. Since 2010 terms are old news and local law FX bonds are subject to the injunction pending appeals, I am not sure how this helps ... not to mention the transaction costs.

Although the ultimate beneficial holders are not bound by the court orders, it is hard to see how most would get their hands on the FX without the help of entities that would either be clearly bound by or worried about New York court orders (banks, payment and clearing systems with a presence in New York). Some might show up in BA, but I am not holding my breath for a large turnout.

The move is obviously a violation of the court orders (so I guess that would be double contempt?), and not exactly in line with the indenture, which requires any replacement trustee to be a New York financial institution. But this is unremarkable--Argentina's actions so far have not exactly been about clever ways to comply (see full-page ads and ICJ lawsuit).

To me, the tone of the legislative proposal is much more remarkable than the content. It takes 40 pages to tell Argentina's version of the events, including the ways in which the U.S. court system and others have failed it. As an aggrieved sovereign, it has no choice but ...

If ever there was a U.S. strategy, it is no more. Not now, not in January. I am not holding my breath for a RUFO sunrise. For now, I am watching Bank of New York Mellon (still sitting on $539 million in limbo from the June payment) and other agents and advisers in New York. One big mess just got messier.


So many questions, but here's two: 1. If bondholders accelerate (as many of them may have the incentive to, since Argy seems to not want to play ball in the U.S.) do you think the courts would allow a restructuring to happen? 2. What does contempt for Argentina actually mean? A fine? No WB/IMF loans? An angry letter? Thank you!

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