After more than a year of chewing on the evidence and letting the charges marinate in their minds, the people who make such decisions at France’s Autorité des Marchés Financiers have decided, oui, Elliott Associates did something wrong when buying and then selling shares of a French highway. But not that wrong, judging by the penalty imposed. Read more »
Elliott Associates has had its fun with Argentina, seizing its warships and suing it around the world and winning just about every important legal battle it has fought with the uniquely recalcitrant debtor over the latter’s 2001 default.
The thing is, though, Elliott can keep on winning those legal battles and it won’t matter a damn, because a uniquely recalcitrant debtor and a great disregarder of the rule of law Argentina may be, but it is also a sovereign country which no U.S. court can force to actually pony up the $1.3 billion it owes to Elliott and other hedge funds, especially if it’s actually willing to default again to avoid paying the “vultures.”
Well, now, while Elliott may have pushed Argentina to the brink of said re-default—it may not be eight days away from one like some countries whose courts keep interfering in its sovereign business, but it’s still seen as the most likely in the world to actually default—it doesn’t actually want to see that happen (because it means it will never see one red centavo of that $1.3 billion). So, with chief antagonist President Cristina Kirchner recovering from brain surgery, Elliott thought that now would be a good time to extend its first olive branch. Read more »
Argentina really doesn’t understand all of the hullaballoo about gay marriage here in the U.S. of A., since it’s been legal down there since 2010. So it’s really having some trouble with the idea that its latest attempt to avoid paying its bills has been obscured. Read more »
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 »
- Argentina had some Old Bonds, decided not to pay them (in 2005, more or less), got most of their holders to exchange into New Bonds at pennies on the dollar, started paying the New Bonds, stopped paying the Old Bonds, the usual.
- Elliott Associates bought up lots of Old Bonds at pennies on the dollar, didn’t exchange, travelled the earth suing and capturing warships and stuff.
- Elliott won a big lawsuit against Argentina, getting a US district court and the Second Circuit to declare that Argentina couldn’t make any interest payments on the New Bonds without ratably paying off the Old Bonds.
- Argentina doesn’t want to pay off the Old Bonds.
- But it does want to keep paying the New Bonds.
- The district court now has to, among other things, clarify its injunction saying that Argentina can’t pay New Bonds without paying Old Bonds.
- Specifically: how, if at all, will that injunction apply to various people in the “payment snake” – indenture trustee, securities depository, banks and brokers and whatnots – that snakes between Argentina, which has the money, and the New Bondholders, who want it?
- Simplistically: Elliott thinks that anyone in the snake who takes money from Argentina and passes it on toward New Bondholders is “aiding and abetting” Argentina in violating the injunction. The snake members are more of the opinion that they’re just a snake and can’t be held responsible for what passes through them.
The head of the snake is Bank of New York Mellon, the indenture trustee on the New Bonds, who are in the unfortunate position of getting money from Argentina and dishing it out to New Bondholders. If the injunction applies to BoNY, then they will be in contempt of court if they do their job. They don’t like this, and filed a brief last Friday saying why.1 They are not alone in this; various other bits of the snake and their caretakers – the New York Fed, DTC, the Clearing House Association, etc. – have expressed similar emotions. Read more »
If you’re a certain kind of dork you will enjoy the hell out of the Argentinian pari passu clause decision out of the Second Circuit today; the opinion is here and here are good things to read from Anna Gelpern and Joseph Cotterrill. In 1994 Argentina issued bonds under New York law that said “The payment obligations of the Republic under the Securities shall at all times rank at least equally with all its other present and future unsecured and unsubordinated External Indebtedness.” Then it exchanged those bonds into new unsecured and unsubordinated external bonds, at 25-29 cents on the dollar, in 2005 and 2010, promising holders that if they did not take the new haircut bonds then they’d never see a penny on the old bonds. Then Argentina went merrily on its way, making regular payments on the new bonds and not the old ones. A bunch of hedge funds, including mainly piratical Elliott Associates, bought the old bonds and sued to get them paid back.
If you’re a human and can read you would predict the result:
- Argentina was paying the new bonds,
- it wasn’t paying the old bonds,
- so it’s definitely treating the old bonds worse than the new bonds, payments-wise,
- so doesn’t that mean that “the payment obligations [on the old bonds don't] rank at least equally with” the new bonds?
And the answer is some sort of indeterminate quantum state. You can take the regular-human reading – bonds that you don’t pay, and explicitly say you’ll never pay, do seem to be getting screwed vis-à-vis bonds that you do pay – or you can take the legalistic reading, which is that never paying interest on a bond is not the same a ranking its interest payments lower. The old bonds and new bonds rank equally as to payment, it’s just that one of them is being paid and the other one isn’t. Simple!
Weirdly that latter theory has lots of support. From the opinion: Read more »
December performance (“Class A interests”). Read more »