Securities Regulation Daily New president steers Argentina to settle beef with bondholders
Monday, February 22, 2016

New president steers Argentina to settle beef with bondholders

By Anne Sherry, J.D.

Over a decade of headaches over defaulted Argentina bonds could be coming to close under a new presidential administration. Determined to reverse the obstinance that led Argentina to default and forced the Southern District of New York to fashion equitable relief, the country's new president is working to settle the litigation. At Argentina's request, the court indicated it would vacate its injunctions to allow settlements to proceed, as long as the Republic's congress repeals legislative roadblocks (NML Capital, Ltd. v. Republic of Argentina, February 19, 2016, Griesa, T.).

Fiscal Agency Agreement bonds. The bonds contain a pari passu clause that promised bondholders they would rank equally with the Republic's other debt. In 2001, Argentina defaulted on the bonds, offering new bonds worth less in exchange. The legislature also enacted several sequential roadblocks to keep holdouts from settling, including a "Lock Law" prohibiting settlement with bondholders who could have participated in the exchange offer. Bondholders' attempts to collect on money judgments were fruitless, and the Southern District used its discretion to craft an equitable remedy enforcing the pari passu provisions by requiring Argentina to make a ratable payment to the plaintiffs whenever it pays on the exchange bonds. Seeing this, plaintiffs in 49 additional actions sought and obtained pari passu injunctions in the first half of 2015.

New administration. In November, Mauricio Macri was elected to succeed Cristina Kirchner as president of Argentina. Macri's government reopened negotiations with the bondholders and reached agreements in principle exceeding $1.1 billion during the first week of settlement discussions. On February 5, the Republic published a $6.5 billion settlement proposal that offers two settlement categories: a standard offer open to all FAA bondholders and a pari passuoffer to those who have injunctions. The proposal is subject to the approval of the Argentine Congress and to the vacating of the court's injunctions. Because the injunctions are pending appeal, Argentina could not ask the district court to vacate them immediately. Instead, it asked for an indicative ruling that the court will vacate the injunctions if the case is remanded.

Altered equities. "President Macri's election changed everything," the court wrote, noting the injunctions were appropriate when rendered but could no longer be justified: Significantly, Argentina has shown a good-faith willingness to negotiate with plaintiffs. If the court refused to vacate the injunctions, it would deprive those plaintiffs that have reached agreements in principle of the opportunity to settle amicably. The injunctions could even give the remaining plaintiffs leverage to refuse to settle. As a further show of sincerity and good faith, the Republic asked that the injunctions remain in effect until it actually makes full payment on all agreements in principle entered into by February 29. The Argentine Congress, which is being asked to repeal the legislative roadblocks to settlement, reconvenes the following day.

Public interest. Vacating the injunctions would also serve the public interest by ceasing the collateral effects on third parties and promoting settlements, both generally and in this particular litigation. As an example, one plaintiff, EM Limited, signed a handwritten agreement in principle to settle for nearly $1 billion. If a plaintiff in another action could use an injunction to thwart that deal, EM—which is not a party to the other plaintiff's action—would suffer as a result. The court never intended that result; to prevent it, it will lift the injunctions in all cases if it lifts any.

Conditions precedent. The equities changed enough to justify vacating the injunctions, but only if other circumstances also change, the court wrote. The Republic must repeal the Lock Law that led the court to fashion the injunctions in the first place, along with other "antagonistic" laws. This will get no argument from Argentina, which itself argued that repeal would be required to lift the injunctions. The court granted the request for an indicative ruling, assuring that it would vacate the injunctions on remand if all legislative obstacles are repealed and the Republic pays in full all agreements in principle reached by the end of February.

The case is No. 14-cv-8601.

Attorneys: Dennis H. Hranitzky (Dechert LLP) for NML Capital, Ltd. Jordan David Weiss (Goodwin Procter LLP) for FFI Fund, Ltd. and FYI Ltd. Carmine D. Boccuzzi, Jr. (Cleary Gottlieb Steen & Hamilton LLP) and Damaris Hernandez (Cravath, Swaine & Moore LLP) for The Republic of Argentina.

Companies: NML Capital, Ltd.; FFI Fund, Ltd.; FYI Ltd.; The Republic of Argentina

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