Greek Holdouts Buoyed By Overnight Argentina Bond Precedent

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."