The panel– moderated by Morgan Stanley’s chief US economist, Vincent Reinhart, and featuring Jeff Vinik of Vinik Asset Management, Ken Ebberts of Goldman Sachs Investment Partners, Michael Novogratz of Fortress Investment Group, and Rob Citrone of Discovery Capital Management– was asked to grade Ben Bernanke. Everyone on the panel gave the Federal Reserve Chairman an “A” or a “B; Paul Singer gave a “D.” [Absolute Return]
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 »