Love and Exhaustion in Argentina

Further to Mark's post on the settlement negotiations, we now have an order from Judge Griesa that brings more love from New York to Argentina than it has seen in a decade, maybe ever.

The order, granted near-instantly on the Republic's request, tells the remaining holdouts (call them hyper-holdouts for short), to show the court by February 18 why it should not lift the pari passu injunctions. It turns the question, "Why should the court help Argentina?" into "Why not?"

Why not, indeed? Mark rightly points out that it takes more than a whim and a ray of sunshine to dissolve or fundamentally change a permanent injunction. But fundamental change is in the eye of the beholder, especially when a government is involved, especially when a big election intervenes.

Argentina argues that its settlement offer is much more than another volley in the endless set. The brief quotes the Special Master, much maligned by the recently departed government, describing the offer as a "historic development." It goes as far as is seemly to go to distinguish the new government from the old. It points out that keeping the injunction in place would frustrate the settlement with those who have already agreed to go in, including, significantly, those sympathetic and telegenic Italian retail creditors ... all for the sake of securing for the hyper-holdouts their astronomical (albeit contractual) penalty interest.

Even those who could not care less about the long-suffering exchange bondholders must wonder about the longer-suffering ordinary folks who would be deprived of their pension savings for another day, so that a super-savvy risk-taker could get more than the rest.

Argentina asks that the court dissolve the injunction once its legislature repeals the Lock Law, and once it pays those who agreed to settle, all by February 29. After the injunction is lifted, the remaining hyper-holdouts lose most of their leverage over the government, which can proceed to borrow in the international markets, ... which it needs to do to pay cash to the settling creditors.

To be sure, Argentina would still have the pre-pari passu remedies to worry about (like ship seizures and whatnot), but those are not nearly as nuclear and fraught with externalities as the injunctions now in place. It also follows that, once the injunction is lifted, Argentina need not worry as much about securing total participation in its settlement.

In all, the end is in sight. Hallelujah. And yet. The pari passu interpretation will remain with us, even once the injunction it begat goes away. This in turn puts more pressure on contract change for those sovereigns who do not want to commit to repay by way of pledging self-destruction a la Argentina.

For the cynics, today's take-away may have less to do with law or love than with terminal exhaustion: she wins who gives this long-suffering court and the rest of the world the quickest and cleanest way out of the nightmare. At the moment, Argentina seems to be it. But it ain't over.

Comments

[Richard Coates]

This case has often turned on behaviour and/or emotion, and I see no reason why this shouldn´t continue.

The Argentine argument is that it inequitable for the "Superholdouts" to reject what appears to be a reasonable offer (evidenced by the fact that several informed creditors are inclined to accept it) and, more importantly hold everyone to ransom in the pursuit of enforcing usurious interest rates.

With a following wind (emotion and behaviour), I suspect their argument will prevail.

[Jorge Vilches]

The real story can be found at
http://www.primeeconomics.org/articles/99uy86vv12pplaq2qad5jqhb9ww5na

[Horace Cavalero]

It is not clear whether the Argentine Government has the ability to get the lock law repealed. The opposition is not bent on making things easy for the President and they have the majority in Congress. . In any case, the repeal of the lock law has to come FIRST before any offer can even be considered by the hold outs. This new government needs to establish something that the country has been lacking all along : a minimum level of good faith.

[John Haskell]

Would you please take a moment to explain how issuing bonds under New York law is "pledging self destruction"? Thanks

[Anna Gelpern]

Pledging self-destruction is not about NY law. It is about using a pre-ICMA formulation of the pari passu clause. I am not convinced that any jurisdiction (including UK) is immune from the NML reading of the clause and injunctive relief.