Cede & Co.

  • 26 Nov 2012 at 3:28 PM

Argentina Can Make Its Problems The Snake’s Problems

Oh Argentina. Still a mess! Basically all the bad things happened on Wednesday: Judge Griesa ruled that (1) Argentina really can’t pay holders of its exchange bonds without also paying off Elliott Associates on its old, unhaircut, defaulted bonds, and (2) neither can anyone else, including such luminaries as Bank of New York (the indenture trustee) and DTC (the clearing system for the bonds). These things are good for Elliott Associates and bad for various other people; you can read about some of the badness here or here or elsewhere.

Here is a note from JPMorgan’s Vladimir Werning on what might happen next; my favorite outcome is this:

- Argentina deposits GDP [i.e., GDP warrants, the first thing that gets paid, but the same logic applies to actual bonds – ed.] by sending check to Cede,
– Argentina does not deposit money for holdouts in escrow
– Cede has property of funds on behalf of bond holders
– Cede does not transfer to DTC but its possession means Argentina has extinguished its obligation de Jure
– The funds for GDP sits idle in Cede – they cannot be attached by Court, but cannot be taken out by bond holders
– Holdouts claim Argentina has re-routed the payments and is not complying with injunction
– Argentina’s lawyers claim payment to Cede is contemplated in the indenture and does not constitute re-routing
In Cede option there is no dispute, obligations have been extinguished de jure, no default, technical or otherwise.

Cede, of course, being the DTC nominee that is the registered holders of all of Argentina’s bonds;1 Werning points out that, while the normal method of paying bondholders is by sending a check to BoNY to send to Cede, sending a check straight to Cede also fits the requirements of the indenture. And because Cede is the only holder of the bonds, if Argentina pays it, then it’s paid the bonds, and there’s no default, technical or otherwise, no triggering of CDS, and nothing bad has happened. Argentina-wise and bond-wise. Actual bond investors might disagree. Read more »