One Bishops Square
London E1 6AD
This EMTA Special Seminar will provide analysis and commentary by a panel of market analysts and legal experts on the latest developments in Argentina and its lawsuits in the US and UK.
9:00 a.m. Registration
9:15 a.m. – 11:15 a.m. Panel Discussion
Yannis Manuelides (Allen & Overy) – Moderator
Stephen Fang (Aberdeen Asset Management PLC)
Walter Stoeppelwerth (Balanz Capital)
Matthew McGill (Gibson, Dunn & Crutcher LLP)
Elena Duggar (Moody's Investors Service)
Breakfast will be provided
Additional support provided by Allen & Overy.
This Special Seminar is part of a continuing series of panels and presentations that EMTA is pleased to sponsor on various topics of interest to Emerging Markets investors and other market participants, and is part of EMTA’s Legal & Compliance Seminars*.
*CLE credit will be available for NY attorneys. This seminar is non-transitional and appropriate for experienced attorneys only. Please click here for details on EMTA’s Financial Hardship Policy.
Registration fee for EMTA Members US$95 / US$695 for non-members
Argentina Update Panel in London
A discussion of the latest developments in Argentina and its lawsuits in the US and UK took place at Allen & Overy’s offices in London on June 5, 2015. Balanz Capital sponsored the event, with additional support from Allen & Overy. Yannis Manuelides (Allen & Overy) moderated the panel, and other panelists included Stephen Fang (Aberdeen Asset Management PLC), Walter Stoeppelwerth (Balanz Capital), Matthew McGill (Gibson, Dunn & Crutcher LLP) and Elena Duggar (Moody’s Investors Service).
Delving directly into the question of whether the recent Bonar 2024 bond issuance can be successfully challenged, Mr. Manuelides asked the panelists how the New York injunction would impact such issuance. Mr. McGill explained that papers were filed in New York to amend the complaint, such that these bonds would be subject to Judge Griesa’s pari passu clause interpretation (and attendant injunction) on the rationale that the clause covers all of Argentina’s “external indebtedness”, which is defined as any dollar-denominated debt (issued in a foreign currency). With respect to Argentine law governed bonds, he reiterated that the exclusion for pari passu coverage only applies if the bonds were offered exclusively in Argentina (not simply first offered in Argentina), and he posited that the Bonar 2024 Bonds were not exclusively offered in Argentina (and the Boden 2015 and Bonar 2017 Bonds may also be covered if offered outside of Argentina). He also cautioned third parties (like indenture trustees, paying agents and clearing systems) from assisting in the violation of any court-ordered injunction with any movement of any monies for Argentina or other work-around designs that are likely risky and may subject those architects of such design and their customers to the jurisdiction of a New York court judge.
Mr. Stoeppelwerth suggested that Argentina consider a bond swap or payment out of its reserves to fix its current dilemma, and McGill replied that the issuance of the 2024 Bonds were probably meant to pay the 2015 Bonds, but any swap is difficult since the bonds would likely be subject to the injunction and offered at a high discount because of the likely applicability of the injunction.
In response to Manuelidis’ question on the “me-toos” litigants, Stoeppelwerth stated that the government would want a comprehensive solution so it wouldn’t have to contend with any hanging litigation. McGill agreed that it would be in Argentina’s interest, as well as the market’s, and Griesa’s wish, to have a global resolution, and that, while the “me-toos” are a large and diverse group, they are cohesive, and a convincing argument can be made that all such plaintiffs should receive the benefits of the injunction.
McGill also explained that the current motion had two parts – part one’s argument at the end of May related to the question of whether Argentina violated the pari passu clause, such that plaintiffs have rights to such clause (a ruling on part one is expected in the near term), while part two arguments related to whether all plaintiffs should get the benefits of the same injunction so they are all on the “same footing” (the timeframe for that ruling is a few months). For McGill, Argentina is erroneously arguing that the “merger doctrine” applies, which prevents plaintiffs from incurring any rights in a contract if they already have obtained judgments. With the political complications to getting any deal done, it is likely that the new Administration will be handling the “me-too” topic, given Argentina counsel’s recent letter, which demonstrated that the current Administration is not ready or interested in reaching a deal.
On the question of whether there will be holdouts to the hold-out deal, McGill responded that there was no world court or forum to bring all bondholders together, with no judicially enforced worldwide settlement, and Griesa will only decide the fate of the New York law bondholders before him (which may be a template for the remaining pari passu clauses under European or Argentine law debt). However, he also stated that, after creditors banded together in “me-too” litigation, it is unlikely that Griesa would “look too kindly” on litigants that do not agree to an all-inclusive deal. And, finally, he pointed out that there are currently $10 billion in New York judgments outstanding, but the size of foreign law judgments is not easily ascertainable or publicly available because Argentina, in his opinion, is strategically withholding such information in their own best interest.
Stoeppelwerth discussed the interplay between the underlying fundamentals and the upcoming election. With an unleveraged economy, the optimistic view is that the continued lack of access to capital would propel the current Administration that is running out of time to move forward past the litigation. He thought that the ingenuity of the Bonar issuance contributed to holding off a dipping into the reserves. However, the next President will not have the choice or luxury of continued isolation from the rest of the world. Printing money, causing inflation, spending $500 million per month will all be too high of a cost to be cut off from the international markets. A new economic regime approach was necessary for 2016/2017 as the currency is currently overvalued. Stoeppelwerth’s “dream scenario” was Presidential candidate Mauricio Macri, who would attack subsidies, do his political homework and settle with the holdouts to effect global acceptance. He thought Presidential candidate Daniel Scioli was more concentrated on his priority of winning the election first, then he’d turn to the second phase of dealing with the holdouts. While a veteran politician with political skills and power to win with Cristina’s endorsement and sponsorship, change under his direction will not be quick. How much is Scioli his own man, how much does the populace want change, whether Kiciloff would be the Vice President (where the market would not be as affected as if he’d remain the Economy Minister) – are all interesting questions to ponder, but with 30% inflation, Stoeppelwerth posits that change is inevitable (even though Cristina is very popular, even though Peronists usually get 30-35% of the vote no matter what and even though if Massa drops out of the race, Sciloli is likely to gain more votes).
Stoeppelwerth was confident that Macri’s team would eliminate capital controls and set forth a path of consolidation, with the primary area to come from subsidies, as gas and electricity is too low. How the new government will articulate a fiscal plan and plan for the holdouts will be crucial. Argentina has to “grow its way out of its problems, have a shock of confidence, a reality check and a population that has to accept change”.
Mr. Fang agreed with Stoeppelwerth and was cautiously optimistic that, with the shale and mining projects, it was likely that there would be some resolution to the litigation in the second half of 2016.
Ms. Duggar stated that the probable duration of default in relation to expected losses, the legal risks and the restructuring process all influenced the rating agency analysis. The main credit drivers were a drop in official reserves and political and legal risk. The underlying fundamental challenges included the fiscal deficit, inflation, capital controls and misaligned exchange rates.