postings by Mark Weidemaier

Epic Systems and the Atomization of Employment Disputes

posted by Mark Weidemaier

Millions of American workers are parties to arbitration agreements that require them to bring claims against their employers in individualized arbitration proceedings (rather than as part of a class or collective action, as authorized by some federal and state laws regulating the workplace). In Epic Systems v. Lewis, a 5:4 majority of the Supreme Court held today that these agreements must be enforced even though the federal National Labor Relations Act declares it an unfair labor practice for an employer to interfere with the ability of employees to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The decision is not unexpected, but it is consequential given the number of affected employees.

The case—really, several consolidated cases—was weird for a number of reasons. The NLRB had concluded that employers who insisted on individualized arbitration were engaged in unfair labor practices. Then, in September 2017, the Board fell under Republican control, and many wondered whether it would continue to defend that position. It did, but the administration worked hard to undermine it. In fact, the Solicitor General, which had previously supported the Board in seeking Supreme Court review, later filed a brief disagreeing with it on the merits.

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Approaching the Middle of the Beginning of the End in Venezuela

posted by Mark Weidemaier

Though none of it is earth-shaking, there has been a lot of news out of Venezuela recently, so it seemed an appropriate time for an update. The election looms. Henri Falcón leads some polls, though those are presumably unreliable indicators, given what Reuters slyly labels Maduro’s “institutional advantages.” A Falcón victory would increase the odds of a restructuring in the near future. A Maduro win might prompt additional U.S. sanctions; the Wall Street Journal (here, also linked above) speculates that these might finally target oil exports.

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A Series of Proposals to Restructure Venezuelan Debt

posted by Mark Weidemaier

Mitu Gulati and Mark Weidemaier

About two weeks ago, we held a small conference at the University of North Carolina School of Law: How Best to Restructure the Venezuelan Debt. The conference focused on proposals developed this semester by students in our joint UNC-Duke class on international debt finance. Some proposals started fresh; others took an existing idea and built on it. Four student groups presented their work and got feedback from a group of about twenty experienced lawyers, bankers and policy-makers. This was—to our minds—an exceptional group, extraordinarily knowledgeable about sovereign debt markets and with particular insight into Venezuela. Included were Lee Buchheit, Chanda DeLong, Brett House, Fulvio Italiani, Hongtao Jiang, Ruth Krivoy, Trevor Messenger, Siobhan Morden, Katia Porzecanski, and a list of others who we will leave unnamed for confidentiality reasons. We are immensely grateful to all of them for their generosity to us and our students.

After the student presentations, our visiting guests offered their perspectives about the Venezuelan debt crisis. It was a treat for us and our students to hear such experts—all of whom have given a great deal of thought to the crisis—discuss solutions to one of the most complicated restructuring problems in recent history. Not all of the discussion was intended for public consumption, but we have permission to post this video of a terrific conversation between Lee Buchheit and Brett House.

After incorporating feedback from the conference, our students have posted their proposals on SSRN. We are really proud of their work. We pushed them hard, at least as hard as we have pushed any prior class, and they responded in spades. Like every proposal, these have flaws (and some are more plausible than others on the risk-reward continuum). But with that caveat, each represents an immense amount of work and contains new ideas:

PDVSA’s Hail Mary: A Chapter 15 Bankruptcy Solution (Samantha Hovaniec, Ryan Nichols, Matthew Taylor, Heather Werner & Rich Gittings)

Lien-ing on PDVSA: The Positive Side of Negative Pledge (Matt Cramer, Kelsey Moore, Andrea Kropp & Charlie Saad)

The Enduring Legality of Exit Consents: A Realist’s Guide (Steven Diaz, Stephanie Funk, Isabelle Sawhney, Gavin Kim & Austin Rogers)

Oil For Debt: A Unique Proposal For the Unique Problem that is Restructuring Venezuela’s Debt (Aditya Mitra, Andres Ortiz, Bernard Botchway, Evaristo Pereira, Shane O’Neil & Will Curtis)

These papers build on a long line of students papers on topics related to sovereign debt restructuring, some of which have made it to publication. Last year, Dimitrios Lyratzakis and Khaled Fayyad got their proposal, Restructuring Venezuela’s Debt Using Pari Passu, published in the Duke Journal of Comparative and International Law. And sometimes, when the proposals are especially creative or insightful, they manage to get the attention of reporters at the Financial Times, Bloomberg, Reuters, and elsewhere.

Venezuelan Debt: Further Thoughts on “Why Not Accelerate and Sue Venezuela Now?”

posted by Mark Weidemaier

Mitu Gulati and Mark Weidemaier

Earlier, we posted about whether holders of Venezuelan bonds would be better off accelerating and obtaining judgments sooner rather than later. In a nutshell, here was the point:

When a restructuring comes (and it will), the two primary weapons the restructurer is likely to use are CACs and Exit Consents. A bondholder who obtains a money judgment, as best we can tell, escapes the threat of either CACs or Exit Consents being used against her.

We heard from a number of people with questions prompted by the post. Here are some of them, and our conjectures as to answers.

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Stormy Daniels, Donald Trump, and the Role of Arbitration in Ensuring Silence

posted by Mark Weidemaier

[Edited to correct names; too many aliases involved in this one]

For readers who haven't been following along: Stephanie Clifford, aka Stormy Daniels, is an adult film star who allegedly had a sexual relationship with Donald Trump in the mid-2000s. She recently sued Trump and other defendants, seeking to invalidate a settlement agreement in which she was paid to keep silent about the details of the alleged relationship. Here is her complaint, which includes the settlement agreement as an exhibit. And here is some coverage of background details.

The settlement agreement includes an arbitration clause, which should prompt some reflection about the use of arbitration to silence victims of sexual assault (a topic that has attracted attention in the wake of revelations about Harvey Weinstein). On the other hand, people are often too quick to blame arbitration for unrelated problems, so I hope this (long-ish) post can offer a bit of clarity. The short version: Whoever drafted the agreement between Clifford and "David Dennison" gets an A for cynicism, but would have to beg for a C in my arbitration class. (I’m guessing the draftsperson would fail professional responsibility...)

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Why Not Accelerate and Sue Venezuela Now?

posted by Mark Weidemaier

Mark Weidemaier and Mitu Gulati

People have been asking for months when investors will accelerate PDVSA and Venezuela bonds that have fallen into default. Rumor has it that some investors have already done so. But there seems to be a consensus that investors aren't in a hurry. U.S. sanctions prohibit a debt restructuring, and few investors are eager for the legal battle that would follow acceleration. But we’re wondering if this view misses something important and unique to the Venezuelan crisis. It seems to us that investors who file suit may be able to negate most of the Republic's and PDVSA's restructuring tools, significantly enhancing leverage when a restructuring finally does occur and making it easier to hold out. So we’re a bit puzzled why some of the more aggressive investors aren’t already rushing to get judgments.

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Strip, Swap, Restructure

posted by Mark Weidemaier

Mitu and I have been posting jointly of late about restructuring options for PDVSA and Venezuela. Alas, I’ll have to write this one myself, because it’s time to talk about an idea that Mitu and Lee Buchheit have proffered for restructuring much of PDVSA’s debt. Their proposal has important similarities to one by Adam Lerrick (also described briefly here and in more detail in the Financial Times), so I’ll cover both.

Both proposals are laudably clear-eyed about some fundamental aspects of the Venezuelan debt crisis. First, if it ever made sense to view PDVSA and the Republic as separate credits, that time is long past. Second, for a restructuring plan to be feasible, it must simplify an enormously complicated debt stock and encompass more than bond creditors. Thus, while neither creates a mechanism for encompassing all of PDVSA’s liabilities, both the Lerrick and Buchheit/Gulati proposals envision a restructuring of both bond debt and the pesky promissory notes that PDVSA has issued to trade creditors. The latter instruments are especially problematic from a restructuring perspective, because they lack contract-based mechanisms for modifying their terms. Finally, both proposals recognize that something must be done to protect oil-related assets, including future receivables, from holdouts.

These shared assumptions result in similar proposals. The difference is in the details, which turn out to be important. Let’s call the Lerrick proposal Strip, Swap, Restructure.

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PDVSA's Debt Restructuring: The Chapter 15 Option

posted by Mark Weidemaier

Mitu Gulati and Mark Weidemaier

This past week, Bob Rasmussen of USC Law gave a talk at Duke on “Puerto Rico and the Netherworld of Sovereign Debt Restructuring.” Luckily for us, he also took a detour to UNC to talk to our International Debt students about whether PDVSA might use Chapter 15 of the Bankruptcy Code to restructure its debts. Our foil for that discussion was a recent paper by Rich Cooper (Cleary Gottlieb) and Mark Walker (Millstein & Co.) proposing Chapter 15 as a possible solution to PDVSA’s woes. This is one of a number of extant restructuring proposals for Venezuela and PDVSA; Lee Buchheit (working with Mitu) has published several others (here, here, and here). The Cooper and Walker proposal is the only one to explore the Chapter 15 possibility in detail, and it thoughtfully makes the case for that restructuring option. In very condensed form, the proposal is for Venezuela to pass a new bankruptcy law governing PDVSA and other public sector entities, for PDVSA to restructure its debts using that process, and then for PDVSA to ask courts in the U.S. to recognize that bankruptcy under Chapter 15.

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The Pari Passu Strategy in Venezuela

posted by Mark Weidemaier

Mark Weidemaier & Mitu Gulati

Should Venezuela worry that holdout creditors will use the strategy that NML Capital and other holdouts successfully used against Argentina? In this article, The Pari Passu Fallacy—Requiescat in Pace, Lee Buchheit and Andrés de la Cruz at Cleary Gottlieb argue not. Lee in particular has made no secret of his distaste for the “ratable payment” interpretation of the pari passu clause. (As many readers know, he is also Mitu’s longtime collaborator.) When interpreted to require ratable payments, the pari passu clause requires a government to pay holdouts in full if it intends to pay restructuring participants in accordance with the terms of their debt instruments. In Argentina’s case, the injunction resulted in another massive default, as the government refused to pay holdouts but could not find a way around the injunction.

Lee and Andrés argue that NML’s pari passu strategy was essentially killed by the person who gave it life, the late Judge Griesa. To oversimplify a bit, the judge’s initial decision--and a decision years before in Brussels in a case involving Peru and Elliott Associates--strongly implied that selective nonpayment is enough to violate the pari passu clause. That is, a government violates the clause simply by paying some equally-ranked creditors but not others. And, crucially, he remedied this breach by issuing an injunction barring everyone with any connection to the United States from cooperating in the continuing violation of the pari passu clause. Without that remedy, Argentina would simply have defied his ruling and continued to stiff holdout creditors.

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Venezuela Errata: Airline Deposits and Administration Posts

posted by Mark Weidemaier

By Mitu Gulati and Mark Weidemaier

The new semester has begun, and we are excited about the International Debt class we teach together, with students from both UNC and Duke thinking about the Venezuelan debt crisis. Their first task—and ours—is figuring out how much Venezuela owes, to whom, and under what contract terms. This year, we have been especially unreasonable, asking students, in just a few weeks, to find, read, and code all relevant contract terms for the entire unmatured bond debt of Venezuela and PDVSA. And the bond debt is only part of the story. For instance, another category of debt, which we haven’t encountered before, consists of local currency (bolivar) bank deposits of international airlines that fly routes to and from Venezuela, which the airlines are not-so-patiently waiting to convert into other currencies.

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The Hausmann Addendum to the Roosevelt Corollary to the Monroe Doctrine

posted by Mark Weidemaier

Mark Weidemaier & Mitu Gulati

Ricardo Hausmann, Harvard economist and former Venezuelan Planning Minister, has been a thorn in the side of the Maduro administration. His blog posts at Project Syndicate condemning the Maduro administration’s continued payment of bondholders while the people of Venezuela starve may well have deterred new lending to the regime. Among other things, Hausmann-induced opprobrium at Goldman Sachs’s infamous "hunger bond"—now trading at a deep discount--has scared many in the market. For more background, check out Cardiff Garcia’s FT podcast interview with Hausmann.

Hausmann’s latest Project Syndicate post goes well beyond complaining about the ethics of Wall Street bond investors. Hausmann first sets out his view of the political realities, in which Maduro’s manipulation of elections and co-option of the military negate any realistic chance for the political opposition to overthrow the regime, notwithstanding U.S. economic sanctions. Given the severe humanitarian crisis, astonishing depletion of national wealth, rampant inflation, widespread corruption, and other harms inflicted or exacerbated by the Maduro regime, Hausmann advocates military action by the United States and like-minded nations. The other nations presumably include countries like Peru, Colombia, Honduras, Argentina, and Chile, all signatories to the Lima declaration condemning the Maduro regime. 

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Implications of the Third Circuit’s Crystallex Decision

posted by Mark Weidemaier

Mark Weidemaier & Mitu Gulati

On Wednesday, the Third Circuit granted Venezuela a victory in its ongoing settled-but-not-settled litigation with Crystallex. The case deals with a limited issue: Whether Delaware law imposes liability for the fraudulent transfer of an asset on an entity that is not itself a debtor.  We want to use this post to speculate a bit about the implications the decision may have for the bigger Venezuelan debt drama. If the new decision is important, it is because it signals something about the receptivity of US courts toward claims that Venezuela, PDVSA, and perhaps US entities like CITGO are “alter egos.” We disagree a bit about that question. But first, some background on this aspect of the Crystallex case.

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Battle of the Bonds: PDVSA Versus Venezuela

posted by Mark Weidemaier

Mitu Gulati and Mark Weidemaier

Over at Bloomberg, Katia Porzecanski notes that investors in Venezuelan debt are “worried they’re getting ghosted.” Overdue coupons are piling up, and no one is sure whether it is because the government is done paying or because U.S. sanctions have made financial intermediaries slow to process payments. Meanwhile, the government has maintained radio silence about the restructuring it purported to announce six weeks ago. The fact that a few PDVSA coupons have been paid in the meantime prompts Porzecanski to ask whether Venezuela is capitalizing on bondholder inertia to “quietly, selectively default,” and whether the government “may ultimately prioritize PDVSA’s debt over its own.” This Reuters article by Dion Rabouin answers the latter question in he affirmative, opining that Venezuela is more likely to default on its own bonds than on PDVSA’s, for two related reasons. First, PDVSA’s oil revenues are the government’s main source of foreign currency; second, a PDVSA default may prompt creditors to seize oil-related assets abroad, potentially including CITGO.

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(Updated) About That Mysterious Crystallex Settlement

posted by Mark Weidemaier

[Update: Here is the unsealed letter describing the settlement between Crystallex and Venezuela. As expected, it reveals nothing of note, simply explaining that the settlement's terms require confidentiality and redacting portions discussing the settlement itself. Also, note that the first paragraph of the original post (below) has been edited for clarity.]

We have covered Crystallex’s attempt to enforce its $1.2 billion judgment against Venezuela a bunch here on Credit Slips (for example, here, here, here, here, and here). In late November, the parties reached a settlement, shortly before a December 5 hearing in Crystallex's lawsuit seeking to attach assets belonging to PDVSA. The hearing was to address Crystallex's argument that PDVSA is the government's alter ego, and PDVSA’s cross motion to dismiss. A ruling in Crystallex’s favor would have let it look to PDVSA’s assets to satisfy its judgment against the government. As noted in the Financial Times, a pro-Crystallex ruling might also have had broader implications, potentially letting “holders of defaulted Venezuelan sovereign bonds ... seek to seize PDVSA assets, potentially including those of Citgo.”

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Commerce Without Law

posted by Mark Weidemaier

Mitu Gulati and Mark Weidemaier

We are gearing up to teach our joint class on sovereign debt next term and, as usual, are mulling over background readings to provide context for the work we ask of students—which typically involves designing a restructuring plan. To do this, students must read many long bond indentures and other financial contracts. Occasionally, we show students historical examples of such contracts, often from the era of absolute sovereign immunity, when sovereigns couldn’t be sued in national courts. Often, students ask why lawyers bothered with such extensive documents when there were no courts to interpret and enforce them. Which gives us an opportunity to talk about reputational and other non-legal mechanisms for enforcing promises, which we and many others have written about, probably more than is, strictly speaking, necessary.

Nothing in the sovereign debt literature, however, is as interesting and immediate as Barak Richman’s new book, Stateless Commerce, which explores how a robust system of international commerce can work for hundreds of years without any state involvement. His exemplar, building on classic work by Lisa Bernstein, is the diamond trade. In theory, opportunistic breach of contract should be endemic, given the ease of theft, the highly subjective nature of quality assessments, and the need for credit to acquire such expensive products. So one might expect the trade to flourish only if there are strong legal institutions capable of rigorously enforcing deals. Instead, the enormously profitable global diamond market has operated for decades largely independent of the state.

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Domination Isn't (Always) Fraud: Venezuela Edition

posted by Mark Weidemaier

I made a joke in the comments to Mitu’s post about whether the arrest of Citgo executives strengthened the argument for treating Citgo as Venezuela’s alter ego. The joke wasn’t very good; I called Venezuela a “typical activist shareholder.” But Mitu generously took it seriously, asking whether this is the kind of behavior creditors should have expected. His question highlights some interesting legal questions. One is whether a creditor who knows about shareholder misconduct before voluntarily dealing with a corporation should be able to enforce its claims against shareholder assets. A second has to do with the legal standard for finding a corporation and its shareholder to be alter egos.  

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Old Wine in New Bottles: Geopolitics and Venezuela's Debt

posted by Mark Weidemaier
Mark Weidemaier & Mitu Gulati
 
Robin Wigglesworth and John Paul Rathbone have an insightful piece in the Financial Times on how China, Russia, and the US are jockeying for position in Venezuela, which needs debt relief. The other governments are in a position to either facilitate or impede this, with conditions. Very roughly speaking, Russia wants regional influence, China wants oil, and the US wants regime change (ideally, while limiting Russian and Chinese influence in the region).
 
Finance has long been both a tool of, and a pretext for, foreign intervention in Latin America. For example, historian Emily Rosenberg and others have written about “dollar diplomacy”—the US government’s early-20th century practice of tying loans to control over customs and taxing authorities. The practice was justified by narratives about the benefits of financial expertise and professionalization, but of course it also served to protect the interests of US lenders while limiting the influence of European powers. Venezuela is no stranger to this history, having endured heavy-handed and often brutal interventions by western powers in the early 1900s.

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Confusion in Venezuela; Alter Egos in Delaware

posted by Mark Weidemaier

Confusion reigns. Venezuela might plan to default, but maybe it's just pretending so it can buy bonds back on the cheap. Then again, it could be a "giant money laundering operation." If there are restructuring talks, U.S. investors can attend, and listen. Except that the talks will likely be hosted by a drug "kingpin," and investors can't have any "transactions or dealings, directly or indirectly" with that person. And don't ask whether PDVSA's late(ish?) payment was a credit event, or what the CDS payout will be on bonds that have experienced a credit event despite having been paid in full.

Thankfully, the law is clear, right? Here's PDVSA motion to dismiss the lawsuit Crystallex has filed in federal court in Delaware, alleging that PDVSA is Venezuela's alter ego and seeking to enforce an arbitration award against the government by attaching PDVSA's equity stake in the ultimate U.S. parent of CITGO. Here's a summary of the arguments the parties have made thus far. The case matters, first, because if successful Crystallex will sever PDVSA's indirect ownership stake in CITGO. It also matters because, as we've discussed here repeatedly, any debt restructuring will implicate questions of alter ego liability. For instance, many restructuring proposals begin by urging Venezuela to withdraw PDVSA's right to exploit oil reserves, so as to better insulate oil-related assets from creditors. This short article explains some of the issues of alter ego liability raised by these and other proposals.

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CFPB Arbitration Rule Overturned

posted by Mark Weidemaier

By a 51-50 vote, with Vice President Pence breaking the tie, the Senate has voted to overturn the Consumer Financial Protection Bureau's rule forbidding the use of contract terms (in covered consumer loan products) barring consumers to bring or participate in class actions. The affirmative vote was supported by the usual narratives: Class actions make credit more expensive, arbitration is a better and more efficient means for resolving consumer disputes, class action lawyers are greedy parasites, etc. The truth of these narratives is irrelevant, it seems. For instance, though it is possible arbitration might be used to efficiently and effectively vindicate consumer rights, there isn't much evidence that it does so in practice, and there is evidence to the contrary. As a mechanism for collecting consumer debts, the history of arbitration is uglier still. And even if the availability of class actions increases the cost of credit--emphasis on if--it's not obvious this would be bad. If class actions deter lender misconduct--not that there's any history of bank misconduct!--, and if this increases some lenders' costs and ultimately the cost of their financial products, then... I don't know. Who cares, I guess? Why should consumers victimized by fraudulent lender conduct subsidize cheaper credit for others? The contrary narrative--that class actions are just so darn expensive to defend that banks settle even the bogus ones for large sums of money--is so implausible that it should not be taken seriously without credible supporting evidence.  

Catalonian Bonds, Anyone?

posted by Mark Weidemaier

Joint post by Mitu Gulati and Mark Weidemaier.

Sovereign bonds issued under the government's own law are supposed to be riskier than bonds issued under foreign (typically, English or New York) law. The logic is simple: Local-law bonds can be restructured with the stroke of a legislator's pen; with foreign bonds, it's not so easy. One would expect that difference in risk to show up in bond yields, which should be higher for local-law bonds, especially in times of uncertainty. There's quite a bit of research to back up that intuition (e.g., Bradley et al. (2017), Nordvig (2015), Chamon et al. (2014), Clare & Schmidlin (2014), Choi et al. (2014)). 

Catalonian bond yields have been rising, thanks to jitters over the secession vote. But Nicolas Schmidlin, a fund manager (who worked on this topic as a graduate student and wrote the paper linked above), noticed something odd about bond yields.

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Do Sanctions Prevent Venezuela From Restructuring CAC Bonds?

posted by Mark Weidemaier

This is a joint post by Mitu Gulati and Mark Weidemaier.

At the end of last week, press reports noted that Mr. Maduro has given the green light for restructuring talks to begin with holders of Venezuelan debt. Curiously, the Russians may lead the talks. One question is whether bondholders subject to US jurisdiction can participate in a restructuring given recent sanctions levied by the Trump administration. Press accounts suggest that the sanctions were intended to prevent this. Bloomberg reports the sanctions were "designed to prevent investors from engaging in liability management, and, if Venezuela can't pay its debt, a restructuring." The Financial Times reports likewise, quoting a senior analyst who thinks the sanctions will work: "If these sanctions stay in place, then Venezuela cannot restructure."

We accept that the sanctions were intended to block a restructuring. But they don't seem to actually do this. There is a rather large loophole that would allow Venezuela to employ a common restructuring technique.

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How Easily Can Creditors Reach Venezuelan Oil Receivables?

posted by Mark Weidemaier

Among emerging market countries that have needed to restructure in recent decades, Venezuela is uniquely dependent on external commercial ties, especially oil exports to the United States by state oil company PDVSA. Because of this, many wonder whether holdout creditors pose a unique threat to the country's restructuring prospects. Unlike, say, Argentina, which could keep most valuable assets away from creditors, Venezuela must worry that holdouts will seize oil receivables. PDVSA's assets include money due from U.S. customers. These intangible assets are located in the United States, where courts can easily divert them to satisfy judgments obtained by holdouts. Note that this logic assumes that courts treat PDVSA as Venezuela's alter ego--a topic discussed several times on this blog--but the assumption is plausible.

But even if we assume that courts will ignore the boundaries between PDVSA and the government, is the risk of asset seizure really so great? The scenario described above presumes that Venezuela structures oil sales to U.S. entities in implausibly straightforward ways. Suppose, for instance, that PDVSA sells oil directly to U.S. buyers in exchange for a promise to pay on delivery. In that case, sure; creditors of both PDVSA and the government will have a field day. But while I am no expert on how PDVSA structures its operations, I would be stunned if things were so simple.

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Venezuela is Like... PDVSA's Alter Ego, and Vice Versa?

posted by Mark Weidemaier

And so it begins. As Anna notes, Venezuela is in dire straits, yet its stubborn insistence on paying bondholders puts it in the running for "world's slowest train wreck." When the wheels finally leave the tracks, expect a free-for-all in which competing claimants (bondholders, arbitration claimants, etc.) fight to recover as much as possible, both from the government and from state-owned oil company PDVSA. The major players will include creditors holding billions of dollars in arbitration awards against Venezuela. These creditors, unlike those holding government or PDVSA bonds, need not fear a debt restructuring. They will, however, have to find attachable assets that can be seized to satisfy their claims.

Enter Canadian mining company Crystallex, which has been trying to enforce a $1.2 billion arbitration award against Venezuela, so far without success. A few days ago, it tried a new tack--one with broader implications for any restructuring of Venezuela's or PDVSA's debt. Crystallex asked a federal court in Delaware to attach the shares of PDV Holding, Inc., a Delaware company that is the ultimate U.S. parent of CITGO petroleum. PDV Holding is owned by PDVSA, which, in turn, is owned by Venezuela.

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Kindred Nursing Centers--More on Arbitration and State Contract Law

posted by Mark Weidemaier

Today, the U.S. Supreme Court decided Kindred Nursing v Clark, an arbitration case in which the Kentucky Supreme Court declined to enforce arbitration agreements between a nursing home and two patients. The agreements had been executed by relatives holding powers of attorney granting broad authority to enter contracts, but the Kentucky Supreme Court held that a power of attorney must specifically grant the authority to agree to arbitration. It was clear--as it often is--that the U.S. Supreme Court would reverse. The Kentucky rule just can’t be squared with governing federal arbitration law. Put simply, state law can't say that a broadly-worded power of attorney grants authority to enter contracts generally, except for arbitration clauses. Not surprisingly, then, the U.S. Supreme Court reversed in a 7 to 1 opinion authored by Justice Kagan.* The dissent wasn’t on the merits, either; Justice Thomas does not believe the Federal Arbitration Act applies to proceedings in state court.

I teach contracts and arbitration law, among other classes, and I find it increasingly frustrating to teach arbitration cases. So many involve plausible applications of contract law (like Kindred) but get the arbitration law flatly wrong. Others involve questionable applications of contract law or related doctrines, seemingly to avoid the effect of arbitration law. Here’s a recent case by the Maryland Court of Appeals, Cain v Midland Funding, which falls into the latter camp.

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More Thoughts on Ukraine

posted by Mark Weidemaier

Having had a few days to digest the ruling awarding summary judgment to the trustee (suing at the direction of the Russian government), I wanted to elaborate on my earlier thoughts about the court's reasoning. As Anna points out, the ruling may be appealed, and in any event the dispute will not be settled for some time. But the recent ruling may be the most significant to come out of the case, so it's worth talking about in a bit more detail. I have already described the defenses Ukraine raised in response to the lawsuit, so I'll skip those details here. In brief, however, Ukraine argued that the loan was made under duress, that the government lacked capacity to enter it, and that the loan included implied terms equivalent to the doctrines of prevention or impracticability--i.e., that Russia implicitly promised not to seek repayment if its own conduct (annexation of Crimea and military intervention in the east) made it difficult or impossible to repay.

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Ukraine's Defenses to Russian Bond Claims Rejected

posted by Mark Weidemaier

The judge hearing Russia's lawsuit to enforce its $3 billion loan to Ukraine issued an opinion today, rejecting Ukraine's defenses to the lawsuit. Bloomberg and the Financial Times both have coverage of the decision. We've discussed the loan quite a bit here on Credit Slips, and also Ukraine's defenses to enforcement (e.g., here, and here, and here). The lawsuit is fascinating, in part because Ukraine's defenses ask the judge to use traditional contract law doctrines to police what is clearly an international dispute between sovereigns who have been engaged in armed conflict. As I have explained in more detail elsewhere, Ukraine's contract-law arguments were actually quite plausible, though by no means a sure thing. Among others, the defenses included duress (always a bit of a stretch, in my view), lack of capacity, and what would typically be called prevention and impracticability under U.S. law (characterized as implied terms of the contract by Ukraine).

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Inter-Creditor Duties in Sovereign Debt

posted by Mark Weidemaier

This is a joint post by Mitu Gulati and Mark Weidemaier

As we discussed in a couple of earlier posts, we have been thinking recently about the use of exit consents to restructure sovereign debt, especially in the context of Venezuela and PDVSA, the state oil company. Though focused on corporate workouts, Bill Bratton and Adam Levitin's new paper, The New Bond Workouts, raises questions that also matter in the sovereign context. Bratton and Levitin give a detailed account of the Second Circuit's Marblegate opinion, a 2-1 decision that seems to authorize very aggressive use of the exit consent technique. (Creditors were essentially given a choice between accepting the restructuring plan or being left with claims against an entity that was nothing more than an empty shell.) Bratton and Levitin generally approve of the Second Circuit's decision, but also suggest that courts should revive the doctrine of intercreditor good faith to police against coercive workouts of bond debt.

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Scotexit and Allocating the UK's Debt

posted by Mark Weidemaier

This is a joint post by Mitu Gulati and Mark Weidemaier.

Scotland voted 62% in favor of remaining in the EU in last June's Brexit vote. Now, with nationalism on the rise in Britain, Scotland has begun to rethink the decision to stay in the UK. Fears of a so-called "hard exit," in which Britain foregoes easy access to the common market, have Scottish leaders like Nicola Sturgeon demanding another referendum on Scottish independence. Which has us wondering: What happens to the (rather large) pile of UK debt if one of its members decides to exit?

It seems like voters in Scotland ought to care about the answer, if given another chance to vote on UK membership. More broadly, one would think voters would want some idea how the UK's assets and liabilities would be divvied up. Things like the public debt, the crown jewels, pension obligations to veterans, the nuclear arsenal, Balmoral castle, and so on. The UK has a lot of stuff. How should it be divided?

Continue reading "Scotexit and Allocating the UK's Debt" »

Bankruptcy and Non-Bankruptcy Options for PDVSA

posted by Mark Weidemaier

This is a joint post by Mark Weidemaier and  Mitu Gulati.

We have talked before about the possibility that Venezuelan state-owned oil company PDVSA will need to restructure. With oil prices still low, the early-2017 gloom about the company's economic prospects hasn't lifted. True, the company and its sovereign owner have managed to stave off default for a while now; perhaps this can continue. But restructuring is a real possibility. In our international debt finance class this year, we have been asking students to think about how a restructuring might work.  

For PDVSA the options basically come down to bankruptcy and the use of exit consents. We talked about the latter option--basically a voluntary exchange offer in which participating bondholders also vote to eliminate contractual protections in the old bonds, making them less attractive to hold--in an earlier post. For many corporations, bankruptcy would be the preferred option, if only to benefit from the automatic stay of creditor collection efforts. But PDVSA's bankruptcy options are limited. It is a Venezuelan company, and Venezuelan bankruptcy law is not ideal for debtors seeking to restructure. Plus, in order to be worth anything, a Venezuelan bankruptcy proceeding would need to be recognized in the United States, likely under Chapter 15 of the Bankruptcy Code. It isn't clear that a Venezuelan proceeding would merit such recognition. Nor is it clear that PDVSA meets eligibility requirements under US bankruptcy law. Still, bankruptcy offers the only mechanism for imposing restructuring terms on dissenting creditors, and that is what PDVSA most needs (with regard to its bond debt, anyway).

Euro-Area Redenomination Risk and the Gold Clause Cases

posted by Mark Weidemaier

This is a joint post by Mitu Gulati and Mark Weidemaier.

Odds seem to be against a Marine Le Pen victory in the French presidential election, though a victory by Emmanuel Macron is hardly assured. And there continues to be chatter about redenomination risk in Europe, to the point that, according to a recent Deutsche Bank estimate, even short-term German bonds were factoring in a 5% risk of redenomination. Last week, in our class on international debt finance, we discussed the so-called Gold Clause cases from the 1930s. Though ancient history in some respects, the cases offer important lessons for some of the debates regarding redenomination risk. First, though, some background.

Continue reading "Euro-Area Redenomination Risk and the Gold Clause Cases" »

A Century of... Not Much for Puerto Rico

posted by Mark Weidemaier

This is a joint post by Mitu Gulati and Mark Weidemaier   

March 2 was the hundredth anniversary of the Jones Act, which gave United States citizenship to many inhabitants of Puerto Rico. An act of benevolence? Hardly. The U.S. needed soldiers. The infamous insular cases ensured that, while tens of thousands from Puerto Rico could fight in the U.S. military, they would remain "foreign in a domestic sense." 

Today, Puerto Rico and its municipalities are mired in debt--over $100 billion counting pension obligations. A bizarre exception to the bankruptcy laws prevented it from restructuring much of this debt, although no one seems to know exactly why the exception exists (aside, perhaps, from the fact that Puerto Rico has no representation in Congress). 

Continue reading "A Century of... Not Much for Puerto Rico" »

Marblegate and the Use of Exit Consents to Restructure (Venezuelan) Sovereign Debt

posted by Mark Weidemaier

This is a joint post by Mark Weidemaier and Mitu Gulati.

About a decade and a half ago, exit consents were a big deal in sovereign debt restructuring. At the time, sovereign bonds governed by New York law required unanimous bondholder approval before any modification to the payment terms of the bonds. The result was that creditors could easily hold out from a restructuring. Needing to mitigate the holdout problem in Ecuador in 2000, sovereign debt guru Lee Buchheit borrowed a technique from corporate bond restructuring practice in the United States. There, the Trust Indenture Act forbids out-of-court bond exchanges that modify "the right of any holder ... to receive payment ... or to institute suit" without the consent of each affected bondholder. To oversimplify, Buchheit leveraged the fact that other terms of the bonds could be amended with a lesser vote, often a simple majority or 66.67% of the bonds. This meant that potential holdouts risked having key protections stripped from their bonds in a restructuring that won the approval of a majority of bondholders.

Continue reading "Marblegate and the Use of Exit Consents to Restructure (Venezuelan) Sovereign Debt" »

Stripping PDVSA's Assets

posted by Mark Weidemaier

This is a joint post by Mark Weidemaier and Mitu Gulati

In a previous post, we talked about how ordinary corporate-law principles, and especially the rules concerning piercing the corporate veil, might play an important role in any debt restructuring conducted by Venezuela or PDVSA, the state oil company. As an example, we cited the fact that PDVSA doesn't own the oil reserves it exploits and the possibility that Venezuela might transfer the right to exploit these reserves to a new entity. Readers who have been following the Venezuelan crisis will recognize that we were not-too-subtly referring to a proposal floated back in October 2016 by Ricardo Hausmann and Mark Walker, writing on Project Syndicate. (Registration required.) In a nutshell, their proposal with regard to PDVSA is that Venezuela can induce PDVSA creditors to participate in a restructuring--conducted either in bankruptcy or through the use of exit consents--by withdrawing or modifying PDVSA's right to exploit hydrocarbon reserves. Essentially, that is, Venezuela can strip the company of its primary productive asset.

Continue reading "Stripping PDVSA's Assets" »

Mr. Regling's "Alternative Facts" About the Greek Debt

posted by Mark Weidemaier

(This is a joint post by Mark Weidemaier and Mitu Gulati.)

In November 2016, Klaus Regling, managing director of the European Stability Mechanism, announced that reforms were going so well in Greece that it would be able to return to the private debt markets by 2017. It's 2017, and neither the markets nor the IMF seem to share the sentiment. Yields on Greek bonds, already high, have increased, and the IMF has concluded the debt is unsustainable. Greece needs an infusion of cash to make a large payment due in July, but the private debt markets aren't willing to oblige.

What does Mr. Regling say? That the IMF (and, apparently, the markets) are wrong; that the ESM's long time horizon and Greece's relatively low debt servicing costs mean there is no cause for alarm (Financial Times, subscription required). Referring to the 174bn euros that the ESM and EFSF have already lent to Greece, he says: "We would not have lent this amount if we did not think we would get our money back." Implication: the IMF and the Euro area nations should lend even more.

Continue reading "Mr. Regling's "Alternative Facts" About the Greek Debt" »

Veil Piercing When a Sovereign Owns the Shares; Venezuela Edition

posted by Mark Weidemaier

This is a joint post by Mark Weidemaier and Mitu Gulati.

At least in the short term, the odds of Venezuela continuing to service its mountain of external debt are looking slightly better, though long-term prospects remain bleak. State-owned oil company PDVSA may be even worse off. A default or restructuring by one or both borrowers will raise issues that are typically peripheral in a sovereign debt crisis. If Argentina's pari passu saga tested the willingness of courts to approve novel injunctions, Venezuela's debt crisis will test the willingness of courts to disregard the legal fiction that corporations are separate legal "persons." That fiction means that a corporation's shareholders are not liable for corporate debts (or vice versa), unless a creditor can "pierce the corporate veil"--i.e., prove the shareholder abused the corporate form to engage in "fraud or inequitable conduct."

Continue reading "Veil Piercing When a Sovereign Owns the Shares; Venezuela Edition" »

Paul Blustein's Laid Low, and Some Musings on the Next Crisis

posted by Mark Weidemaier

(This is a joint post by Mark Weidemaier and Mitu Gulati)

We jointly teach a class on international debt, focusing on what happens when sovereign governments and the entities they control go bust. We love this class, because we work with our students to design a restructuring plan for a country in financial distress, and our students often come up with terrific ideas. This semester, we're focusing on Venezuela, which would involve an enormously complicated restructuring. One reason is that Venezuela has not exactly cozied up to the IMF, which typically plays a key role in a restructuring. To get a sense of the IMF's role and limitations, we asked our students to read Laid Low, Paul Blustein's new book about how the IMF played a part in managing (and mismanaging) the Greek debt crisis. Blustein is a terrific story-teller, with rare access to key players at the IMF and elsewhere. Although we followed the European debt crisis closely, much of what's in Laid Low was new to us.

Continue reading "Paul Blustein's Laid Low, and Some Musings on the Next Crisis" »

Pari Passu Nevermind

posted by Mark Weidemaier

One last (I hope) gift from the pari passu litigation against Argentina: this opinion ruling that Argentina does not breach its pari passu obligations by paying holdouts like NML (who recently settled claims against the country) or by paying bondholders who had previously participated in its 2005 and 2010 exchange offers. The result was basically a given. The judge was hardly going to lift the injunction only to reinstate it when the next holdout came along. The interesting question was how the judge would distinguish bondholders who refused Argentina's latest settlement offer from bondholders who had refused prior offers.

There was an obvious and sensible answer. Because holdouts already have claims for money damages, the meaning of the pari passu clause isn't all that important unless violation produces a different remedy, such as an injunction. But an injunction is appropriate only when the benefits to the plaintiff exceed the costs to the defendant and third parties. Now that Argentina has made a reasonable settlement offer (in the court's judgment) and obtained the assent of the vast majority of bondholders, an injunction might do more harm than good. Thus, in the opinion linked above, the court holds that, whatever the meaning of the pari passu clause, an injunction would be inappropriate because "significantly changed circumstances have rendered the pari passu injunctions 'inequitable and detrimental to the public interest'" (p. 9). So far, so good. But the opinion doesn't stop there. Instead, the court's primary ruling is that the selective payments Argentina is currently making do not violate the pari passu clause at all.

Continue reading "Pari Passu Nevermind" »

Disarming Holdouts in Sovereign Debt Restructurings

posted by Mark Weidemaier

The pari passu litigation against Argentina—discussed extensively here on Credit Slips, on FT Alphaville, and elsewhere—caused many people to worry that future government debt restructurings would become more difficult. Some have their eye on Venezuela as the next to default, though the country and its troubled state-owned oil producer PDVSA stubbornly continue to pay external creditors despite dire economic and humanitarian circumstances. Wherever the next crisis occurs, there will be interest in devising ways to avoid the fate that befell Argentina.

A quick re-cap: federal courts in New York (i) interpreted the pari passu clause in Argentina’s contracts to forbid the country to keep current on its restructured debt unless it also paid holdout creditors in full and (ii) implemented this ruling through an injunction preventing financial and other intermediaries from helping Argentina continue making payments. Some worry that this remedy, if widely applied, could make it impossible to restructure.

So…what to do? Here’s a new proposal from Lee Buchheit (Cleary Gottlieb) and Mitu Gulati (Duke). It’s cute. And it has a clever name: the Cryonic Solution.

Continue reading "Disarming Holdouts in Sovereign Debt Restructurings" »

Uber Helps Me Revise My Contracts Syllabus

posted by Mark Weidemaier

I've been meaning to post about this recent decision, by Judge Rakoff in the Southern District of New York, denying motions by Uber and its CEO Travis Kalanick to compel arbitration of a class action lawsuit. More coverage here (Bloomberg) and here (Law360). The lawsuit alleges that Uber suppresses price competition among drivers in violation of the antitrust laws. The court's opinion covers some arcane issues of arbitration law, such as the defendants' argument that the plaintiff had to arbitrate the question whether an arbitration agreement existed. (Answer: No.*) But mostly, the opinion is about contract law--or rather, about how not to design a system for forming contracts on-line.

Continue reading "Uber Helps Me Revise My Contracts Syllabus" »

Ukraine's Defense: Russian Suit Part of a "Broader Strategy of Aggression"

posted by Mark Weidemaier

It has taken several months, but the Russian Particulars of Claim and Ukraine's Defence (akin to complaint and answer in U.S. civil procedure) have now been filed. Distilled to its essence, Ukraine's response, as the Financial Times notes, is that "if you wanted your money back you should not have invaded our country." Or as Ukraine's lawyers put it in the Defence: "The [Russian] claim forms part of a broader strategy of unlawful and illegitimate economic, political and military aggression ... aimed at frustrating the will of the Ukrainian people to participate in the process of European integration." 

Russia's version of events is straightforward and looks like any other debt case: Russia lent the money, Ukraine committed a breach of contract by not repaying. Ukraine, by contrast, will have a harder time translating its defenses into the dry language of legal doctrine. But it can be done. As I have written here at Credit Slips, and in more detail elsewhere, contract law provides Ukraine with a number of potentially viable arguments. Now that we know the arguments asserted by Ukraine, here are some preliminary thoughts.

Continue reading "Ukraine's Defense: Russian Suit Part of a "Broader Strategy of Aggression"" »

The CFPB's Proposed Rules on Consumer Financial Arbitration

posted by Mark Weidemaier

As has been expected for some time, the Consumer Financial Protection Bureau has issued a proposed rule that would prohibit companies providing consumer financial services from pairing arbitration clauses with clauses that prohibit consumers from bringing or participating in class actions. The rule also imposes disclosure requirements on companies that use arbitration. The CFPB's announcement is here; the proposed rule is here. There are two main components.

First, covered providers of consumer financial products can still include pre-dispute arbitration clauses in their contracts, but those who do must explicitly state that the consumer retains the right to bring or participate in a judicial class action. The rule requires that the following language be included in the contract: "We agree that neither we nor anyone else will use this agreement to stop you from being part of a class action case in court. You may file a class action in court or you may be a member of a class action even if you do not file it." (As an aside, the CFPB rule only applies to class actions brought in court. Companies may forbid class action proceedings in arbitration, and I imagine that careful drafters will want to do so expressly.) Second, the Bureau proposes to require covered providers to submit information about claims filed by or against them in arbitration, including copies of the arbitration demand, any response, and the arbitrator's award (see p. 362-363 of the proposal). The Bureau apparently hasn't made up its mind about whether it will make this information public or will merely use it to monitor arbitration proceedings. 

 

Puerto Rico Restructuring Options That Don't Rely on Congress

posted by Mark Weidemaier

The revised draft PROMESA bill (available here) is now under debate in Congress. The bill appears to respond to some early criticisms, although its length and complexity obscures answers to some important questions. Under the circumstances, it seems sensible for the Commonwealth to consider all of its options, including those that do not require Congressional action. These include, as Mitu Gulati and I write in the Financial Times (here, subscription required), changing Puerto Rico's own law in ways that might facilitate a restructuring. 

We asked law students in a class we taught jointly at the University of North Carolina and Duke to consider ways the Commonwealth could restructure without Congressional authorization. Working in groups, they came up with some answers that are both creative and plausible. That doesn't necessarily mean easy or agreeable from the perspective of Commonwealth politicians. Some proposals envision amending Puerto Rico's constitution, while others rely on provisions of Puerto Rico law that authorize collectively binding debt modifications but that haven't been previously applied in this context. The important point, however, is that Puerto Rico may have a wider range of options than many think. The attractiveness of these options is relative. If Congress cannot provide an effective restructuring mechanism that respects the Commonwealth's right to democratic governance, other lawful options will begin to seem more attractive. Two of the student groups have made their work available on-line; their short papers can be found at the links above.

Puerto Rico And (Very) Soft Executive Power

posted by Mark Weidemaier

Melissa's post asked what the executive branch could do to facilitate restructuring of Puerto Rico's debt. I'll get to that, but I first want to talk about Puerto Rico itself. At first glance, the Commonwealth seems to be in a uniquely terrible position. It has the disadvantages of a sovereign (e.g., no bankruptcy) but lacks the advantages (e.g., legal and/or practical immunity from legal enforcement). In fact, it lacks only most of the advantages. One advantage of sovereignty it does enjoy--and that many "true" sovereign borrowers are obliged to forego when they borrow--is that much of its debt is governed by its own law. That law can be changed (subject to constraints in the U.S. constitution) or interpreted in ways that give the Commonwealth needed restructuring flexibility. 

Continue reading "Puerto Rico And (Very) Soft Executive Power" »

Argentina and the Holdouts Reach a Deal

posted by Mark Weidemaier

The title pretty much sums it up, but this fastFT article gives a few details. The short of it: $4.65 billion to the group of holdouts led by NML (a roughly 25% haircut, reportedly), with the payment still requiring legislative approval in Argentina.

And... That's A Wrap. (Maybe?)

posted by Mark Weidemaier

"Put simply, President Macri's election changed everything." So sayeth Judge Griesa, according to Bloomberg, which reports that he will lift the injunction once Argentina repeals laws blocking payment on defaulted debt. Changing "everything," apparently, does not include actually treating creditors equally. But equal treatment is so very 2012. And we're beyond that now, aren't we?

Lifting the injunction doesn't, of course, make the claims asserted by NML et al. go away.* But it will dramatically reduce their leverage, presumably producing a settlement on or near the terms most recently offered by Argentina. And if there isn't a particularly good reason to lift the injunction--one rejected settlement offer is hardly my definition of "everything"--there was never a particularly good reason to enter it in the first place. All's well that ends well, I suppose.

[Edit: Because the injunctions are on appeal, the appeals will have to be remanded back to the district court before the order lifting the injunctions take effect.] 

Pari Passu Endgames: Now With Even More Unequal Treatment!

posted by Mark Weidemaier

The ending of the pari passu saga was destined to be somewhat messy, if only because it would force the court to confront the fundamental illogic of the injunction. If we accept that each holder of bonds untendered in the 2005 and 2010 exchanges has a contractual right to equal treatment, then any settlement with less than 100% participation can be blocked by holdouts, who are, after all, denied equal treatment when settling bondholders get paid. And there are further wrinkles. For example, Argentina's current settlement proposal treats holdouts with injunctions differently from holdouts without injunctions, and this too is incompatible with equal treatment. (The equal treatment obligation stems from the underlying bond contract, not from the injunction...) Of course, nothing prevents bondholders from agreeing to accept unequal treatment. But a holder that rejects the settlement would have an additional reason to complain.

Continue reading "Pari Passu Endgames: Now With Even More Unequal Treatment!" »

Russia Files Lawsuit Against Ukraine

posted by Mark Weidemaier

Reports indicate that Russia has filed a lawsuit against Ukraine to collect on its $3 billion debt--not in arbitration, as early signs had indicated, but in the High Court in London. Not much in the way of further details yet, but the fact that the case will be heard in court, rather than under the rules of the London Court of International Arbitration, means the proceedings will be at least somewhat more transparent. As I wrote previously here on Credit Slips, and discuss more extensively here, the case will turn in part on whether the broader political and military conflict between the two governments can be translated into terms recognizable as defenses under contract law, including the defenses of prevention, impracticability, etc. I think Ukraine has plausible--though far from certain--arguments here. Anyway, more to come as the case develops...

Argentina's Settlement Negotiations and Lifting the Injunction

posted by Mark Weidemaier

Shutterstock_286798478Argentina faces a complicated task in settling with its remaining holdouts, but there has been recent progress. The country has agreed to settlement terms with a large group of Italian bondholders and, most recently, several US hedge funds. The remaining barrier to complete resolution is the same as the old barrier: Elliott's NML Capital and assorted other holdouts. Bloomberg has two good explanations of the remaining issues here (by Katia Porzecanski and Chiara Vasarri) and here (by Matt Levine). The short version is that NML cleverly bought a subset of Argentine bonds that accrue pre-judgment interest (on principal) at extraordinarily high rates. Because of this, the settlement terms offered by Argentina are less favorable to them than to other holdouts. Elliott et al.'s rejection of Argentina's proposed settlement has prompted some speculation that Judge Griesa might be tempted to lift the injunction (thereby pressuring the remaining holdouts to compromise). 

Continue reading "Argentina's Settlement Negotiations and Lifting the Injunction" »

Contract Law and Ukraine's $3 Billion Debt

posted by Mark Weidemaier

The Russian government has announced announced that it plans to initiate legal proceedings against Ukraine by the end of the month to recover the $3 billion in bond debt now in default. It's not yet clear whether the proceedings will be in English courts or in arbitration. Officials in Ukraine say they expect to win. At first glance, that seems like posturing; after all, Ukraine borrowed $3 billion and didn't pay it back. But as it turns out, Ukraine has some pretty decent arguments, which if successful might excuse (or allow it to defer) the obligation to pay. Some of those arguments involve international law, and I'm a bit skeptical that those will succeed. But as I explain in a short new paper, Ukraine's contract-law arguments might fare somewhat better. Here's the abstract to the paper:

Russia has announced that it will initiate proceedings by the end of January (likely in arbitration) to recover the $3 billion debt owed by Ukraine. The Russia-Ukraine dispute is unique in the annals of sovereign debt litigation. It is a politically and militarily fraught conflict wrapped in a garden-variety, English-law contract dispute. The dispute may settle, and if so its resolution will depend largely on political and economic considerations. Yet the resolution will occur in the shadow of basic contract law, which is surprisingly relevant. Indeed, there are a number of plausible arguments available to Ukraine, which, despite the unusual facts, may excuse (or allow it to defer) its obligations to Russia. It would be understandable for judges and arbitrators to hesitate before weighing in on such a politically-charged dispute, but Russia’s insistence on acting like a private creditor leaves little choice.

DIRECTV v. Imburgia Decided, Surprises No One

posted by Mark Weidemaier

Earlier I posted about DIRECTV v. Imburgia. To recap the issue: DIRECTV's contract with subscribers (i) required arbitration, (ii) forbade class actions, and (iii) provided for litigation in court if "the law of [the subscriber's] state" refused to enforce the class action waiver. California law refuses to enforce class action waivers in some circumstances, but this law is preempted by the Federal Arbitration Act. State courts in California invalidated the class action waiver anyway, reasoning that the contract actually meant to incorporate (i.e., be governed by) invalid state law. The interpretation is so odd that, in my view, it is explicable only if one assumes that the judges simply wanted not to enforce the arbitration clause. But the Federal Arbitration Act also preempts modes of contract interpretation that discriminate against arbitration clauses, and that seems plainly true of this mode of interpretation.

Anyway, the opinion is here, along with a dissent by Justices Ginsburg and Sotomayor. Justice Thomas dissented because he believes the FAA does not apply to proceedings in state court.

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