Argentina Wins Reprieve - Brevan Howard Vs Elliott Round One Or Gore Vs Bush Round Two

Tyler Durden's picture

Just as the ever soaring Argentina default swaps indicated that a technical default for the Latin American country - one which would eventually morph into a second full blown default in a decade - was all but inevitable (and previews extensively here), the twisting and turning multi-year story of Argentina vs its "vulture" holdout creditors got its latest dramatic installment last night. Shortly after market close, the Second Circuit court of appeals once again override last week's critical order by Judge Griesa that Argentina promptly pay everyone or face monetary exclusions, lumping together any and all agents who facilitated the ongoing isolation of the holdout hedge funds from the broader group which in Griesa's view had pari passu status throughout.

To wit (pdf):

"IT IS HEREBY ORDERED that the motion by the Exchange Bondholder Group for leave to intervene as interested non-parties for the purpose of appealing orders entered by the district court on 11/21/12 and for the purpose of seeking a stay pending appeal is GRANTED."

The immediate result: Argentina GDP Warrants surged the most this year, rising 1.88 cents or 20%, to 11.40, as hope that an immediate technical default could be avoided.

As a further result, Reuters promptly added that "Argentina has won a reprieve against having to pay $1.33 billion next month to "holdout" investors who rejected a restructuring of its defaulted debt and have waged a long legal battle to be paid in full. Argentina argued that, if left to stand, the order would make future restructurings impossible for countries facing debt crises because creditors would have no incentive to exchange their bonds at a discount. However, some legal experts said Griesa's order would not have such broad ramifications because Argentina hurt its own cause in refusing to pay the holdouts, and that Griesa's ruling focused on the government's behavior in this specific case."

While the above is completely correct, there is a more nuanced interpretation of the events, one which of course involves the role of the "exchange" bondholders as well as their very floral lawyers.

As the FT had discussed before:

The group of “exchange” bondholders, led by the fund Gramercy, but also including Brevan Howard, one of the world’s biggest hedge funds, sought the reimposition of the stay to “ensure that interest payments to the bondholders continue while the appeal is decided”, David Boies, a lawyer for the group, said.


“The exchange bondholders agreed to take under 30 cents on the dollar to support Argentina’s debt restructuring in accordance with US government and international fiscal policy. They should not be further penalised,” Mr Boies added.


Argentina swapped nearly 93 per cent of the almost $100bn on which it defaulted in 2001 in two rounds of restructuring in 2005 and 2010. As a result, it now considers the default history.


The exchange bondholders also entered a declaration by Stephen Choi, a New York University School of Law professor. Mr Choi said Judge Griesa’s order – and a separate ruling by the Second Circuit Appeals Court in October – would “reduce the ability of sovereigns in economic and financial distress to engage in efficient, value-increasing restructurings”.


He added that it was likely that “sovereigns that traditionally issued bonds under New York law will switch to English law and possibly other jurisdictions including local law”.

In other words, the underlying dynamics here have shifted from much more than a mere case of equitable treatment of an impaired bondholder class (so found in a court with US jurisdiction), but now have implications over the entire sovereign distressed debt process and protocol, which in the process could force creditors to avoid US bondholder protections in the future, and to seek UK, Swiss or even Japanese bond indenture jurisdictions. The shift to local law would certainly be quite curious as it is precisely what the key fulcrum issue in an insolvent Europe is. Recall that as Lee Buccheit said several months ago it is the vast preponderance of weak-protection local bonds in Spain, that will allow for a comparable cram down in the country similar to that which happened in Greece previously. It is just a matter of time.

More curious, is that what until now was merely a headline grabbing conflict between a hedge fund: Elliott, and a sovereign, has now morphed into one between a hedge funds (or two: Elliott and Aurelius - the "Holdouts") and other hedge funds (Brevan Howard and Gramercy - the "Exchanges"). In other words, whereas previously it was the smart money vs what many consider "dumb" Argentina public servants, Argentina now has very vocal a hedge fund backing on its side, in this case mega fund Brevan Howard, who will do anything to prevent the halts of cashflows from Argentina, even if that means taking on not only Paul Singer but Judge Griesa directly.

But where the conflict's escalation will be by far the most entertaining, is in the legal arena. Because as the Guardian below summarizes, the two key opposing lawyers already are quite familiar with each other...

The latest big gun to enter the fray is celebrated attorney David Boies, whose appearance is the latest sign of escalating stakes in the case. Boies, a partner at Boies, Schiller & Flexner, represents holders of Argentine bonds who agreed to two rounds of restructurings in which Argentina issued new debt at a steep discount.


His appearance also sets up a potential rematch between Boies and another top-flight attorney, Theodore Olson, who is representing an opposing group of investors. Olson represented former President George W. Bush at the Supreme Court in a case that decided the U.S. presidential election in 2000. Boies represented Democratic candidate Al Gore, who lost the election.


Olson, a partner at Gibson, Dunn & Crutcher and a former solicitor general under Bush, represents investors who refused to participate in the restructurings, the so-called holdout bondholders.

Argentina may have avoided an immediate default, but it is likely that the Elliott wing will do everything in its power to return to the pre-appeal status quo asap. This will be fought tooth and nail by the Exchanges, and soon, in court, potentially escalating all the way to the SCOTUS.

One thing is certain: the drama and the excitement of watching Boies vs Olson in the Supreme court once more this time discussing not hanging chads, but Argentinian solvency, coupled with the navies of Elliott and Brevan Howard, will be truly fascinating stuff.

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GetZeeGold's picture



Screwed by GM.....skunked by Argentina.

EnslavethechildrenforBen's picture

Truly fascinating stuff?

What's fascinating is that people don't all have printing presses in their garages...

CPL's picture

They do, it's called scrapping ewaste.  Copper, gold, silver, REM's.  About as close to a printing press as it comes.


Just add effort and organisation.

Urban Redneck's picture

screwed by a little vulture... skunked by a bigger one.

fonzannoon's picture

Someone start shocking LIEsmans balls asap! He drank a shot of truth syrum!

"The 2.7% is not real"

Spitzer's picture

Was he talking about Argentina ?

Because normally these keynesian mental cases only apply their bullshit to the US. As Krugman says, printing money doesnt cause price increases or bond devaluation because it hasn't happened (in the US. )

fonzannoon's picture

He was talking about the GDP massive revision up. I probably should have posted elsewhere. I was caught off guard by the honesty.

EscapeKey's picture

I fucking hate that chart-cherry-picking, weasel-wordsmith that is Paul Krugman.

The only thing he champions is deliberate dishonesty.

LawsofPhysics's picture

Expected and consistent with the current status quo of fraud.  Moving forward, if you can't touch it or defend it, you don't own whatever "it" is.

BandGap's picture

I love chicks in t-shirts. Thank you for your sponsors, ZH!

Isn't the gist of this that there is no protection for bond holders in US law if Argentina can get away with this?

They are going down anyway as another repercussion is that no one is going to loan to them anyway. This is a playoff game before the Super Bowl.

machineh's picture

'The drama and the excitement of watching Boies vs Olson in the Supreme court once more this time discussing not hanging chads, but Argentinian solvency, coupled with the navies of Elliott and Brevan Howard, will be truly fascinating stuff.'

LOL, Tyler!

Your punchy commentary leaves the grey-uniformed stenographers at the NYT, WSJ and FT green with envy. Free the journos! 

Speaking of navies, where are the judiciary's yachts?

buzzsaw99's picture

the usa is the lap dog of offshore hedge funds. he(d)gemon(e)y bitchez. :snark:

I can't wait until China, Iran, Argentina, and all the rest tell the usa to shove their clownbux up their asses.

TNTARG's picture

Well, Mayer Amschel Rothschild was born on February 1744 and the US declaration of independence was on July 4, 1776, isn't it? He had, what, 32? Ready to become the Master.

Seriously, I think the US is, with its citizens, another victim of this ugly and unfair game.

Shevva's picture

SCOTUS - Isn't that what your balls hang in? (If your a girl reading this it's the things you should play with when giving oral pleasure to your man, unless you don't like men then you can read right on past this comment).

AynRandFan's picture

In the new collective, contract rights will always yield to the moralistic cause du jour.  Exhibit A: the U.S. Federal government completely subverted U.S. bankruptcy laws in the GM bankruptcy by inverting the rights of bondholders to the pension plans.

LawsofPhysics's picture

Correct.  Fraud is the status quo on the planet earth.  Go long black markets and any physical asset of real value that cannot be devalued by a central bank.

j0nx's picture

Status quo for the upper 1% maybe. You try that shit and see how fast you land in jail. People allow it so...

LawsofPhysics's picture

Bullshit.  The regular employees of companies that recieved taxpayer-forced bailouts are very much the beneficiary of fraud.

Wake the fuck up.

asteroids's picture

Look, Argentina and Greece are intentionally screwing bondholders. Just like the US did to GM. It's immoral and it catches up with you.

LawsofPhysics's picture

"It's immoral and it catches up with you." -


Really?  GM is still in business. I call bullshit on that one.

Isn't fascism great?

Stupid fucking sheep.

Snake's picture

Bottom line: Argentina is not and will not default, regardless of what floods of (out of date) techni/colour charts may pretend to demonstrate.  Anybody visiting and comparing Argentina in 2001 with Spain, Greece and Argentina today would have been able to surely state that.  Also, Theodore Olson defending vultures ... makes a whole lot of sense.  Doesn't it?

CrashisOptimistic's picture

Item 1: Argentina borrowed money.  

Item 2: We are about to learn (again) that keeping the wheels turning trumps EVERYTHING.  They owe money?  Paying it back threatens the system?  Then guess what; they won't owe money.

Item 3: The systemic consequence is going to select two paths.  1) If I borrow money and never have to pay it back, why not borrow more -- in fact, everyone should. 2) If they aren't going to pay it back, maybe I shouldn't be lending money to anyone. 

TNTARG's picture

Premise 1 is not correct.

See, you have to know HOW the argentinean debt was built, including dictators, death and other kind of beauties.

Argentina defaulted. Then the sharks had the bonds for pennies.

Argentina offered a deal: 93% accepted.

Then these predators want 100% of that they had for almost nothing. Go fuck themselves otherwise Argentina is gonna find the way (to pay, to live)  but others won't have such possibilities when upcoming sovereign defaults sequence begins.

Argentina, on the other hand, is not alone in the dark.

Finally, "they borrowed money" is kind of an entelechy as far as for State's debts; See "Foreign Debt mechanism: The “Cow in the corral” and a huge lot of other papers, books, essays about it. But you must know that already, I'm sure.

steve from virginia's picture


Hmmm ...


I suspect Greisa knew he would be overturned when he issued his original ruling. Now he can look to Elliott's lawyers and shrug his shoulders, "Sorry ...!"


Meanwhile, Argentina needs to play nice as it is now a petroleum importer having lost its exporter status over the last quarter. From here on in, Argentina must borrow and must do so overseas. No borrowing = no cars.


Horrors! Can't have that, can we?

CrashisOptimistic's picture

Not quite right. No borrowing = no trucks = no food shipments to grocery stores.

Can't have that, can we?

steelhead23's picture

I note a number of you villifying Argentina's government for not honoring her debt to the vulture hedgies.  What, you all hold such bonds?  Look, Fernadez is defending her country, her people, against the vampires.  I sure wish we had politicians here who sided with the people against financial predators.  Instead, here we put them in office, interview them on TV and extol their virtues.  Fuck that.  Vive Argentina!  Vive Fernandez!

CrashisOptimistic's picture

Just out of curiosity, those pieces of paper held by the hedgies . . . suppose they didn't hold that paper.  Someone else would.  That someone else would be owed the money.  Are you saying no one should get repaid the money Argentina borrowed?

What mathematically does the word "vulture" have to do with anything?  They borrowed the money.  They owe it.  Time to repay.  Doesn't matter to whom.

If they won't repay, then why would anyone dare lend to them anymore?

steelhead23's picture

Let us not forget that back when Argentina went bust ALL bondholders were offered a deal.  Only 7% chose to hold onto their paper.  While I hope I am wrong, unless there was some kind of majority rule in the original issuance, U.S. law will likely oblige Argentina to pay.  Then the fun begins.  Were I Fernandez, I would be moving Argentina's offshore banking relationships out of the U.S. because once they win, the vultures would tie up all Argentine assets in this country until they pay.

samcontrol's picture

Sems zh and readers have it so wrong on Argentina.

This judge just got a big yellow card in Football terms, the real stuff not that 4 second head banging i like.

Pay the bankster funds 100 on the dollar when everybody got 32. Really? What was this guy thinking? The can has been kicked until end of feb when Argentina will pay the holdouts....guess what 32,,, and if they break more balls they will pay ZILCH. There, in my simple English!

Somebody must of explained to the poor old guy, the implications in the US with things like chapter 11 after such a decision.
His ears are still red.

samcontrol's picture

Sems zh and readers have it so wrong on Argentina.

This judge just got a big yellow card in Football terms, the real stuff not that 4 second head banging i like.

Pay the bankster funds 100 on the dollar when everybody got 32. Really? What was this guy thinking? The can has been kicked until end of feb when Argentina will pay the holdouts....guess what 32,,, and if they break more balls they will pay ZILCH. There, in my simple English!

Somebody must of explained to the poor old guy, the implications in the US with things like chapter 11 after such a decision.
His ears are still red.

Thisson's picture

This is a legal case.  In particular, a contracts case.  The court is NOT saying that Argentina cannot default outright on everyone.  The court is only saying that absent a cram-down mechanism, Argentina cannot pay the Exchangers while not paying the Holdouts. The contract does not contain a cram-down mechanism (collective action clause).  Nor is this a bankruptcy, where there are also cram-down mechanics.  There is no way this is going to the Supreme Court because it's a simple issue of interpreting a contract.  The policy impact on foreign sovereign defaults is completely irrelevant, and, in reality, is immaterial: going forward these contracts will have to write in provisions for how to deal with a restructuring, either by including a CAC clause or some other clause.  NY law can still be used.  In fact, I'd argue that not enforcing the contract as written would be more likely to result in using some other choice of law than not enforcing the contract.

So, in practical terms, what's the result?  Argentina has a couple of choices: (1) they can either comply with the contract; (2) they can breach the contract, pay nobody anything, and outright default; (3) they can default and make some kind of "moral obligation payment" to the Exchangers.  Each of these choices has consequences.  But there's no work for the Supreme Court to do here.  NY Contract law is not complicated, and the terms of this contract are not vague or ambiguous.

steelhead23's picture

Thank you.  I take you know more about this case than most here.  Collective action clause, that is the term I was looking for.  I would assume that Argentina wishes to avoid outright default, but the default with goodwill toward the Exhangers option seems equitable to me, but would likely have some nasty consequences for Argentina going forward.  Again, thanks for sharing your expertise.

samcontrol's picture

a lot of words to end up with number three that is the same as my basic spanglish explanation.

Urban Redneck's picture

Here's some simple truth about the selection of Common Law jurisdictions in private international law-


The monkeys use it because they are unsophisticated and don't know any better, or even what the actual ramifications of it are, and the Wall Street thieves use it because THEY OWN IT.

Everyone else uses the UK.



Thisson's picture

Your statements are very foolish.  NY law is most excellent when it comes to contracts.

smiler03's picture

In that case I presume you would agree that Jon Corzine and MF Global adhered strictly to NY law and that that was most excellent. 


Or did they adhere to the US Law of the Jungle?

Urban Redneck's picture

Not in comparison to England, although the difference is even more striking when looking at arbitration rules.

Ghordius's picture

+1 even Russian Oligarchs prefer to settle there

TNTARG's picture

And.. Who owns the Bank of England?

I've heard a Goldmanite is running the show up there.

Seems to me they all belong to the same club.

Ghordius's picture

The Bank of England belongs to... England.

It's a National Bank, since 1946, by Act of Parliament.

Urban Redneck's picture

BoE fortunately has nothing to do with governing law.  However, there are crappy judges in both jurisdictions polluting the body of precedent, and if one finds himself stuck standing amongst jurists before a judge in either jurisdiction- they are likely to throw up their hands in disgust.  When a contract falls to dispute resolution it's last call the tavern and there are certainly varying degrees of ugliness between the wenches.

De brevitate Vitae's picture

Wait, who used to take the piss out of the Argentinian leaders about a week ago?