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The Republic of Argentina International Legal Battles Report

Research for Traders = por Sebastián Maril

http://reports.researchfortraders.com/download-report/1216/58605500998_argentina-legal-battles-report.pdf

Unable to agree with Argentina and unwilling to accept the offer in the table following the official lifting of the injunctions, these creditors want the judge to order Argentina to make ratable payments every time Argentina services debt on any outstanding international bond.

Under the current terms, most of these investors would receive between $ 0.80 and $ 0.97 on the dollar after suing Argentina for over a decade.

During the first week of May, New York Southern District Court Judge Loretta Preska allowed these creditors to represent themselves and ordered Argentina to respond all claims in one sigle document by May 10.

This is a new wave of claims against Argentina filed by disgruntled holdouts that originally sued the country but have been unable to reach a settlement. It opens a new phase in Argentina’s never-ending litigation for defaulted debt.

Latest: On May 10, Argentina submitted a written response to all these cases insisting that holdout creditors are "recycling previous unsuccessful claims and simply ignore the holdings of Judge Griesa and the Second Circuit that the Republic is no longer acting in breach of the pari passu clause”. Judge Preska has requested that plaintiffs should respond to Argentina’s argument by May 31.

“Interest-on-interest” creditors

Early in 2018, Argentina saw a new creditor file a type of claim that, until then, had not been in anybody’s radar. DRAW Capital Partners, a Delaware-based fund, filed a civil lawsuit against the sovereign for $ 650m arguing that the Republic owes "interest-on-interest” due on restructured bonds not paid between 2014 and 2016 while Argentina was unable to make such payments due to Judge Griesa's debt injunctions.

The bonds in question were originally issued pursuant to exchange offers by the Republic in 2005 and 2010 when the Republic restructured certain public external debt on which it had defaulted in 2001. DRAW Capital Partners, unlike the holdout creditors, owns restructured or exchanged bonds.

DRAW Capital claims that, according to Section 4.4(a) of the bonds’ indenture, in the event the Republic defaults on any periodic interest payments due on the debt securities, the indenture also requires Argentina to pay interest on those missed periodic interest payments.

In a March 2018 audience with Judge Preska, DRAW argued that Argentina has failed to make such “interest-oninterest” payments, which are expressly and contractually mandated under the bonds’ indenture. In a court filing, the fund said that as a result of the sovereign’s willful failure to pay interest on the exchange bonds while it resolved the holdout disputes, the Republic ignored the rights of the exchange holders to receive “interest on interest” payment and were deprived of contractually mandated interest payments of in excess of $ 3.5bn.

An interesting twist in this case is that on May 2016, George Soros' Knighthead Master Fund, sent a letter to the Argentine government requesting interest-on-interest for its restructured bonds. According to publicly available court documents, KMF also cited Section 4.4(a) of the indenture as the basis for its claim. The fund never filed a lawsuit against Argentina for this claim and was never paid.

DRAW Capital Partners represents an undisclosed number of creditors who hold exchange bonds and demand $ 650m. The Delaware-based fund, which was incorporated in November 2017, says that there are “hundreds” of additional creditors that could potentially participate in the class action lawsuit.

Latest: On May 14, Argentina will submit a written response to DCP’s civil lawsuit.

New debt injunctions sought

Late on December 2017, Argentina revived old phantoms as three international holdout creditors requested District Court Judge Loretta Preska to reinstate the debt injunctions against the Republic of Argentina. Case 17-09934 filed by Bartolomé Bugliotti and others, claims that Argentina has not negotiated in good terms with those creditors who have yet not reached an agreement with the sovereign and argues that Judge Griesa left the door opened for the court to apply the debt injunctions once again, should bondholders attest that Argentina is not willing to settle all outstanding claims.

In April 2016, Judge Griesa’s vacatur of the pari passu injunctions he had entered in 2012-2015, observed that bondholders could again seek such relief if Argentina was “recalcitrant” and “did not intend promptly to resolve” its payment disputes with bondholders.

Although Argentina has successfully negotiated settlement terms with 98% of its international creditors, there are some 100 creditors holding $ 630m in defaulted bonds that have expressed their dislike of the sovereign’s offer and want further negotiations. Argentina is not able to up the current offer and this is being interpreted as lack of willingness to resolve disputes.

Latest: On April 17, Bugliotti’s attorneys submited a letter requesting Judge Preska for an Oral Argument on Argentina’s April 16 Motion to Dismiss. The Judge has not yet responded the plaintiff’s request.

Twenty years and still no settlement

According to documents filed by Argentina with the SEC last month, there are 92 actions involving bonds with an alleged nominal amount of approximately $ 629m pending in the District Court. Judgments for a total value of approximately $ 670m have been entered in actions involving bonds with a nominal amount of approximately $ 364m. Some of these defaulted bondholders have been litigating against the sovereign for almost 20 years and are not looking to reach an agreement anytime soon. They are looking for ways to increase their compensation filing new calims, reopening old cases and finding legal loopholes, such as the one used in the new Lock Law cases, to convince the judge that Argentina is not willing to up its current offer.

As long as a single disgruntled holdout creditor continues to face Argentina in a New York court, the probability of a judge siding with the bondholder increases and is ill-advised for the government to sit still and watch a manageable situation escalate into a new serious event.

This report is for information purposes only and is not intended to recommend the purchase or sale of any security or investment. It contains information available in the market and such sources presumed to be reliable. However, no guarantees can be made about the integrity or accuracy of it. All opinions and estimates herein reflect the current judgment of the author as of the date of the report and it may be subject to change without notice. The value of any investment may fluctuate as a result of market changes. The information in this report is not a prediction of results and no assurances are given with respect thereto. If any information from the report can be considered as a recommendation, such information is impersonal and not suitable to the investment needs of any specific person. Therefore, it does not disclose all the risks and other significant issues related to an investment in assets mentioned. Before making an investment, potential investors should ensure that they understand the terms and the associated risks. We strongly recommend looking for professional advice. Research for Traders receives no compensation as a result of transactions on assets mentioned in the report. It is not allowed to forward this mail with its contents and/or attachments as it is private information for those who are sent to them. Therefore, it may not be reproduced in whole or in part without prior approval of Research for Traders.

 
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