Greek Holdouts Buoyed By Overnight Argentina Bond Precedent

Tyler Durden's picture

As the week's panacea event (no, not iPad3) draws ever closer, overnight news our of Argentina may be critical for any fence-sitting Greek PSI holdouts. As Reuters reports, a US judge has ruled in favor of a holdout creditor forcing Argentina to pay $650mm interest and principal on their long-forgotten defaulted/restructured debt. Argentina defaulted on $100bn bonds in 2002 and has yet to return to the international capital markets. While the Argentinians continue to litigate holdouts, the judge's decision in favor of these so-called 'vulture funds' (an affiliate of Elliott Management) offers renewed confirmation of considerable payouts in time for Greek bond PSI holdouts. Argentina's whiny reasoning that "bondholders who did not take part in the 2005 and 2010 debt swaps do not deserve full recovery because it is unfair to bondholders who accepted less" sums up the perspective of cram-downs and forced action that sovereigns will try to take. The vulture-fund litigation (and successful precedent here) blocks any new debt operations by Argentina until settlement is reached. This coincides with Bingham McCutchen's committee of Swiss-law Greek bond holders who look set to holdout or 'protect the rights of bondholders' as there appears to be several investors actively considering all of their options, including litigation - but as noted above, litigation can take years (though returns could conceivably be very large given par payouts of bonds trading sub-20% currently).

From Reuters

Argentina's Economy Minister on Monday lambasted a U.S. judge who ordered the country to pay interest to a holdout creditor on debt it defaulted on a decade ago, saying the judge had changed tack and succumbed to pressure from so-called "vulture funds".


NML Capital Ltd and other holdout creditors who rejected debt swaps in 2005 and 2010 are suing to recover the full value of their non-performing bonds after Argentina defaulted on some $100 billion in sovereign debt in 2002.


Argentina has yet to return to international capital markets but should it try to do so, it faces the threat that some of its assets could be seized ...




NML, an affiliate of the investment firm Elliott Management Corp, is seeking $650 million in capital and interest from Argentina, La Nacion said, adding that Griesa's ruling affects "all parties involved directly or indirectly" including banks.




"The ruling has very little reasoning," Economy Minister Hernan Lorenzino told reporters late on Monday...


"It's evident that he succumbed to the pressure of the vulture funds."




Griesa has granted several billion dollars in court judgments to litigating holdout creditors. But so far, they have not been able to collect any money since U.S. sovereign immunity laws protect most assets owned by a country abroad.


Argentina has argued that bondholders who did not take part in the 2005 and 2010 debt swaps do not deserve full recovery because it is unfair to bondholders who accepted less.


So-called vulture funds have vowed to try to block any new debt operations by Argentina. In past months they have taken new action in a New York court.

Perhaps Greek holdouts are better placed this time given the far-greater contagion impact to the rest of Europe should a sovereign actually fail and the pay-them-out-at-par PSI-defection strategy may well gather more pace on this news.


But one point did come to mind from another Reuters story:

Law suits over sovereign debt can also take years. Argentina still has not settled with some creditors who held out during its debt default a decade ago.


Greece's economic recovery may also not be as certain as in Argentina's case as it cannot devalue and does not have such a strong export market to boost its coffers.


"Argentina historically has had a boom and bust economy. If you brought an international legal claim, it may be in part because you thought that, by the time the case was over, Argentina could have the money to pay an award against it," said Michael Nolan, a litigation partner at Milbank Tweed Hadley & McCloy in Washington.


"With Greece's economic situation, one has to wonder if the game is worth the candle."

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Hondo's picture

You just can't issued debt and then default and think there will be no repercussion or pain....there is no free lunch money.........

SheepDog-One's picture

But...cant we just pretend a bit longer its good for stocks?

GetZeeGold's picture



Why do you think we're been kicking the can down the road for so long? we've got a precedent.....that's exactly what we've been trying to avoid.


CrashisOptimistic's picture

This is testimony to the concept that there is no such thing as soveriegn default.  The bond holders just shrug at any announcement and continue to compound, and bill for payment, bill for payment, bill for payment.

This can go on forever.  A country can never hold assets outside its border or they will be confiscated.

The entity known as Greece may have to disappear.  The country may have to empty.  How bizarre is that?

BidnessMan's picture

So why would a country need to hold assets outside its borders?  Why might Greece have to disappear?  

They are far better off than a lot of European countries after WWII, who were pretty well physically destroyed.  Paid a terrible, terrible price, but eventually recovered.  Value produced has to equal value consumed, but what is wrong with that?  For Greece, lots of olive oil and tourism to pay their crude oil bill.  But retirement at 50 and spending 120% of income every year will have to disappear.  Agree with you there, but not bizarre.  Bizarre is thinking that everyone can retire at 50 and spend 120% of income every year.

Stoploss's picture

Angie said last month or so it would take "years" for the crisis to work out. "Years of litigation after Greek default" i think was more what she meant.

Chief KnocAHoma's picture

Uh oh spaghetti oooos! Guess its time to attack the Faulkland Islands again on behalf of the Crown.

bianchiidolo's picture

Argentina already went through a lot of pain, I'm an Argentinean and I can tell you that. But this is capitalism as far as I know, right? There is something called "losing". If your bet fails, you lose. Expect in the case it's not capitalism. Then tell me how you call it.

SheepDog-One's picture

Well its 'capitalism' for a handfull of trillionaires I guess, who no matter what get repaid in full on their bad bets +20%....for the rest of us, bend over.

K_I_T_T_Y's picture

Watched a very interesting movie at the cinema, Memoria del Saqueo....

DevilsPrinciple's picture

Ok. Are there English sub-titles , unless you are available to serve as interpreter ?


This documentary examines the recent economic catastrophe in Argentina: the devastating consequences of globalization, neo-liberal economics and corruption in this once rich country.Stars Mick Jagger. I kid you not.

 Released in 2004, so yeah this is probably a recent film release for Argentina. < ahem>

K_I_T_T_Y's picture

watched some years ago, they had german and french subtitles so I am sure they had in english as well.

Basically showed how international corporation got all the possible cash out of Argentina leaving it with debts....

History repeats itself....

prole's picture

Government fat-cats "issue bonds" "sell them" and stuff the money in their personal pockets and divvy up among insider friends ala Solyndra and "Volt" scams, then pass the bill over to the sheeple of their particular country and call it "Capitalism!"

All we get is the bill.

samcontrol's picture

hi , if you have anything to do with Bianchi wines , i'm interested and i live in Bariloche,,

firstdivision's picture

No free lunch?!?  Apparently you haven't feed at the 33 Liberty Street trough

battle axe's picture

Pay up Bitchezzzzz!!!!

Chief KnocAHoma's picture

Damn Hondo... you're funny. That's just not the way America works. We give everything to everyone... cell phones, food stamps, health care...etc. But I am still waiting on politician that will promiss free hookers.

BidnessMan's picture

John Corzine is getting away with it.....

malek's picture

 there is no free lunch money.........

A rule "there are no free lunches" does allow for exceptions - so if you find lenders stupid enough, there might be a free lunch or two. But no continuous free lunches, yes.

Manthong's picture

How dare that neo-con judge do anything to enforce the terms of a contract against the wishes of a government and support the concept of a legal indenture.

Hansel's picture

The debt being forced on Argentina isn't exactly legitimate.  There is a great documentary on youtube, Argentina's Economic Collapse, for those interested.  The debt is known as the "illegitimate debt" in Argentina.  It was forced on Argentina by American banks.

Chief KnocAHoma's picture

This is so crazy. Your statement suggest our banks are preditory. Almost like they would push money out the door to unqualified borrowers, then package the bad loans into MBS that are sold all over the world as AAA products. Then issue CDS insurance against default of anything and everything under the sun, but never vote to trigger a default.

Please... American bankers are salt of the earth... and the sooner they return to dust the better off the world will be.

CrashisOptimistic's picture

Hard that it may be to believe, if you can know that you can continue to bill for payment forever, the threshold of unqualified borrower lowers a great deal.  And the other side of that coin is if Argentina had demanded a loan and banks had refused to lend, they would have been called vicious, stingy filth who won't let a country develop.

The bottom line here is that there is no such thing as sovereign bankruptcy.  There is no court of bankruptcy law that can expunge debt from all parties.  It's forever.

Chief KnocAHoma's picture

Kinda like herpes... you get screwed and it stays with you forever.

SheepDog-One's picture mean we actually had to make good on that and pay it back??

Stomach Full of Xanax's picture

To my Husband,

If you are reading this, please get back to work.  Momma needs some silver coins.

Love's you

Global Hunter's picture

This right here is the trouble with telling your wife, spouse, partner etc. about ZH

graymnzrc's picture

Good news: Beautiful weather day tomorrow

Better news: A freind secured a tee time and asked me to join him for a round of golf

Bad news: The idiot asked me right in front of my wife!

Bartanist's picture

The Argentians are better off without foreign debt.

The judge is doing Argentina a favor by preventing the international bankers from once again gaining control of the country.

In case no one has noticed, Argentina is now in much better shape than it was under the banksters. The Argentinians should do as the Iranians are doing, demand payment in gold for their exports.

Executioner's picture

A very lucid assertion, man.

caconhma's picture

This is the excellent point. The notion that one borrows, refuses to pay back, declares a bankruptcy, and somebody else have to suffer just does not make any sense but it is good for the criminal zionist banking mafia.

BidnessMan's picture

Completely agree.  What a concept - actually live within your means.  One of the reasons I bought some property in Ecuador - figure the government will have to somewhat balance the budget.  Ecuador defaulted on some "odious" debt in 2009, and now have to live within their means.  Shunned by Western bankers is a good thing for the country.  

The Chinese are lending Ecuador money - but for specific infrastructure projects like roads, hydroelectric dams, oil refineries, and copper mines mostly to be built by Chinese companies with Chinese labor.  So most of the money goes immediately back to China.  And fixed assets like roads and dams can't just be boomerang deposited into a Swiss bank account by the latest kleptocrat, with the general population left holding the debt bag. And the Chinese of course now have first dibs on the resources.  

The amusing thing is there are western bankers just itching to go lend Argentina more money.  That is their job, what they do, the only game they know.  Close deals and collect their bonus this year.  Repayment is some future schmuck's problem. Trillions of hot dollars, Euros, Yen, whatever paper / electronic currency you want rocketing around the globe waiting to be skimmed by Banksters and Kleptocrats just sets up mankind for abuse.  

Everybodys All American's picture

and this is why it's called a "bond".

Comay Mierda's picture

all this mess over a small country like greece. can you imagine the shit hitting the fan when spain, italy, etc defaults?  oh and lets not forget the motherload of all inevitable debt defaults - 'Merica

Chief KnocAHoma's picture

We will NEVER default. You'll just get paid back with worthless paper...SUCKERS!

graymnzrc's picture

How would a regular Joe like me place a $1000 bet on the Greek Bonds coming due on March 20? is there a trading vehicle for that?


stormsailor's picture

go buy 10,000 one year ggbonds from your brokerage.

Cognitive Dissonance's picture

"bondholders who did not take part in the 2005 and 2010 debt swaps do not deserve full recovery because it is unfair to bondholders who accepted less"

Translation: Because you didn't take your screwing when everyone else did, you aren't entitled to collect on the promise we made to you when we originally issued the bond.......before we broke our promise again and again and again. Fool you once, shame on you. Fool you twice, shame on you two.

So there.

CrashisOptimistic's picture

This really is quite the precedent.

I got $5 that says this case was off the Obama Administration radar screen or no way in hell that judge would have been allowed to make this ruling today.


espirit's picture

Is that bet in AU or AG? Fiat is worthless, even Argentinian.

CrashisOptimistic's picture

$5 USD.  Go into your convenience store and put a tiny shaving of gold on the counter and see if the clerk will take it or call the police when you drive away without paying for your gas.

There is no bin in the cash register for gold.  There likely never will be.  The costs of verifying gold vs tungsten are just too high.

youngman's picture

Kind of amazing that they do THINK that way....governments at work....what  a joke.....and this Greece default will be returning shortly...probably within the year as they will still be broke....with no income...and expenses less..but still way to I expect by december another bailout....but by then..they will have some competition...

exi1ed0ne's picture

The only way a US Judge can force a Sovereign nation to pay up is by invading and taking it. I'm not so sure Argentina's resources are crying out to be liberated like in the Middle East.

Everything else is just hand waving.

CrashisOptimistic's picture

No, it can be binding.  Any assets Argentina holds outside its borders could be confiscated for payment.  Any transactions it undertakes to buy imports could get surcharged by a court.

There are ways to collect.

msamour's picture

If the two parties in a transaction decide to bypass US Federal Reserve Notes as a means of payment, and do not use any US institution, there is nothing they can do to prevent the transcation. They tried it in Canada in 1996 for a company I worked for that was dealing with Cuba. The US tried to seize their assets, but the company I worked for gave them the middle finger, and the Canadian court told the US they had no jurisdiction.

There will come a time when people finally understand the US elites are not Gods, and don't get everything they want, when they want it.

Notice here I sasted US Elites, this does not include the bulk of the US population that are just struggling like everyone else in this world.