Paul Singer/ Getty
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Judge Thomas Griesa, who is a Judge in the Southern District of New York, on Friday said a plan announced by the President of Argentina Cristina Kirchner, in a national address on August 26th, is “an apparent attempt to evade” his ruling in a complicated case brought by billionaire hedge fund manager Paul Singer. Singer’s Elliott Management Corp. and other “vulture fund” investors including Aurelius Capital Management, hold large holdings of defaulted Argentine sovereign bonds, which they acquired over a long period of time.
On August 25th a United Sates Federal Appeals Court upheld a massive US$1.33 billion judgment these investors won last Fall in a decision by Judge Griesa against the State of Argentina. New York Law has long been a favourite jurisdiction of choice for international sovereign and corporate bond issues precisely because of the protection it can offer to investors in the event of loss. The Appeals Court decision is though currently being considered by the US Supreme Court for possible final adjudication due to its potential impact on the foreign relations of the United States.
Immediately after the Federal Court of Appeal ruling the President Kirchner therefore had proposed allowing a “voluntary swap” of all its existing current foreign debt, that was earlier restructured, in exchange for more new bonds this time governed by local Argentine law (sounds like a tale of new lamps for old again….). The purpose of the proposal is of course explicitly to do an end run around the decision of the New York Court.
Under Judge Griesa’s ruling Argentina had been ordered to pay principal and interest on its defaulted bonds, including arrears, ratably with any payment it made to its US$85 billion of current bondholders who had accepted the original earlier restructuring.
Without this voluntary swap it has now proposed Argentina has been threatening that, rather than pay a penny on the old defaulted bonds it would simply default on all of its debt all over again. With the new “voluntary” swap this would in theory, according to Argentina anyway, allow it to make payments on the current bonds alone as these would henceforth be subject solely to local Argentina law and no longer be subject to the restraints of New York Law, under whose jurisdiction they currently reside.
Well Judge Griesa isn’t buying any of it, and regards this a transparently illegal effort to avoid his previous decisions.
Accordingly Griesa, who referred specifically to the Kirchner plan, yesterday barred Argentina from “altering or amending the processes or specific transfer mechanisms by which it makes payments on the exchange bonds, without prior approval of the court.”
Judge Griesa also ordered Argentina to disclose any communications with bondholders, financial institutions and other third parties about any plan or proposal aimed at evading any of his decisions.
The Argentine Government had promised to keep paying investors who own the country’s current bonds regardless of how U.S. Courts rule. “Griesa’s order doesn’t add any new elements to the case, ” Argentine Finance Secretary Adrian Cosentino said bluntly in a statement.
This ruling firmly puts the ball back in Argentina’s court though, and negates completely the hopes of the current Argentine sovereign debt bondholders – who for sure are not going to be parties to violations of an order of the New York District Court – that they might be paid at all without a full settlement of Paul Singer’s case. So unless the US Supreme Court decides to intervene and overrule the Federal Court of Appeal’s decision the stage is set for a further confrontation, and potential technical default by the State of Argentina on its sovereign debt.