DOES REASON PREVAIL?

There was a story out today that the Argies have decided that rather than raging at the failing of the light, they were going to ask the District Court that issued the now-upheld opinion to assist in negotiations with EMC Capital et. al. in settlement talks to see if in fact this thing can be settled.  Having called Judge Griesa of the Southern District just about every name imaginable, this takes some set of stones, but it appears, that true to his trade the good judge has put all of that in the past and actually appointed an attorney to help in the upcoming negotiations.  Of course one might well ask the question what does the other side have to gain from this having won a resounding victory in the SC topped off by Justice Scalia's almost joyful rendering of the Court's decision.  Well, aside from finally getting rid of this thing and moving on with life--with an  anticipated very healthy profit with out which there will NOT be a deal, there is perhaps a even more practical reason to go forward.

Let's look at it from this standpoint: if I were the Argies and their counsel, despite suffering this very severe and comprehensive defeat, they might have well gained a powerful argument in return.  Keep in mind that the part of the ruling that did not receive as much attention was green light for a very broad discovery as to the size, nature and location of Argentine assets world-wide on the part of the creditors.  If I were them I would start my search not too far removed from 33 Liberty Street in New York…yep, the home of the New York Fed.

Throughout the years, certainly for the last 40 when I was involved, there has always been a discussion of in what way would or could the Fed be involved in a situation such as faced by Argentina.  I have always argued that national assets held by the Fed were not immune from attachment in aid of execution of a judgement against a sovereign as long as those assets qualified as being available under the Sovereign Immunities Act of 1976.  That has not been the prevailing view as for some reason the Fed was felt to hold a special status among depositories.  I have always believed that view was incorrect in fact as well as in law and this decision may well prove my assertion to be correct.  One thing I do know for certain: whilst perhaps not a nightmare scenario, the Fed has always deemed getting drawn into this mess not a good thing as the possibility of a knock-on effect being the disruption of the international payments system by Argentine assets suddenly being held subject to discovery as to their nature under a Federal District Court order could result in chaos.  Soooo, if I were the Argies, I would trot down to Liberty Street and tell the boys that I know it's not what you wanted but now is the time to become involved to a greater extent than just a friend of the court brief.  It's one thing to hold firm to a position affirmed as being correct by the highest court in the land but it's quite another to face the Fed as Queen Victoria making it known that "We are not amused…" or at least that's the way it was in the good old days.  Lads, you are in the business of finance and in this thing there's plenty of money to satisfy everybody.  My advice would be: don't blow it.


In the greatest act since Lazerus, El Tri got through.  Left for dead a few months ago, Mexico qualified only because the United States played 90 minutes against Panama and won although they were already the winners of the section.  Panama needed to but tie to have put Mexico out.  Mexico has justified their inclusion whereas, in the greatest irony of the tournment, the USA must tie or beat powerhouse Germany in order to advance.  A strange, magnificent and yet cruel sport.

ARGIE BARGIES

Rumor has it that the Argies are looking for a deal whilst trying to figure out how to get around the rulings of the Second Circuit which were affirmed this week.  The problem is, they may not have any time for either because a payment under their restructured debt is due at the end of next week and if they, they have to pay EMC Capital under the terms of the court ruling.  It's a really tough ruling; so tough that you almost fell sorry for the Argies…nah, not really.  The court got it so right that it has put other institutions on notice that if they assist the Argies in its avoidance, they too could be liable for damages.  Tough.

What has been suggested is that the restructured creditors agree to change the governing law clause in their agreements to Argentine law, thereby removing the subjectivity to the court ruling.  Not gonna happen, and even if it does, it wont fly.  You see, the trustee for the bondholders--the institution that makes the actually payments--is Bank of New York Mellon and there is no way that the institution make those payments unless specifically authorized by the Second Circuit and that ain't gonna happen either.  Further the court would probably view a institution that agreed to change the governing law as being complicit with the Argentines in avoiding the order of that court and denying the rights of EMC et.al.  So that, too, ain't gonna happen.  In short, unless Argentina's lawyers can come up with something truly brilliant (and as I have said Cleary, Gottleib/Lee Buchheit are as good as there is), the Argies have been had by the shorts.  It don't get no better than this.

Now if I were in the middle of this thing…and I have hardly enough knowledge of the situation to do more than simply speculate…the best I could hope for would be to get an agreement on the part of the restructured bondholders not to bring suit under the default in exchange for an amount equal to payment required to be deposited in pesos with an Argentine trustee in Argentina in the name of the bond holders.  This is not unheard of and there have been in the past some very useful interpretations of accounting rules that, hopefully, could be brought into play regarding performing debt, because nothing has ANY CHANCE of working if the threat of a write-down, i.e., loss, in any way enters the picture. The Pesos would be non-convertable at the present.   Don't get you much but it does buy time.  More importantly, the U.S. courts probably wouldn't jump up ugly.

Look, at some point, despite how much humble pie they are going to have to eat and the money it's going to cost them, the Argies are going to have to agree to a deal on the unrestructured debt.  What that will look like I have no way of knowing, but there's a number out there somewhere between 0 and 100% plus some kind of interest to which EMC and the others will agree.  I would be willing to bet that the hold-outs have already decided on the parameters.  Turning for a moment from giving free advice to the Argentine to offering some to the hold-outs (which I am sure they don't need),  You got the best decision for which you could have hoped, and the courts, in so delivering it no doubt expect that a settlement will be reached.  Don't go back to court.  These guys get bored looking at the same thing again.  As grandma used to say, you win, pick up the marbles, of which there will be quite a few as we will explain next week.


England went out today as a battling side from Costa Rica defeated I Azzuri 1-nil.  Sadness reigns but we still have the USA on Sunday.   Have a great weekend.