EMTA Special Seminar: A New Argentina? (UK) - Jan. 11

EMTA Argentina Post-Election Update Held in London

Following Argentina’s long-awaited elections, EMTA’s first 2016 event on January 11 was a Special Seminar focusing on that country’s economic prospects, as well as a discussion of the current litigation. Puente sponsored the event, which Allen & Overy hosted at its offices in London, and Shearman & Sterling provided additional support.

Yannis Manuelides (Allen & Overy) moderated with the following panelists: Edwin Gutierrez (Aberdeen Asset Management), Sergio Trigo Paz (Blackrock), Alejo Costa (Puente) and Antonia Stolper (Shearman & Sterling).

Manuelides remarked that it’s clear that all parties want to move fast in resolving Argentina’s situation and that all accept there would be immediate costs. The economic, political and litigation discussion and its impact on the future of the country were the topics that the panel addressed.

Costa listed the FX, monetary, fiscal and litigation/hold-out issues as the challenges Argentina faces as it seeks to borrow money abroad. While some FX restrictions still remain, there is a significant level of qualified confidence in the new Administration. The Brazil situation was not minor for Argentina as a collapse in Brazil would adversely affect its neighbor. Macri may also face problems in passing a budget through Congress.

Paz commented that, as an investor, he (and others) viewed the situation was complicated, and that he was grappling with whether this was an idiosyncratic trade not necessarily attractive in the short term at 7%, and what other comparable investments would yield. He also wondered whether any new bonds would have sufficient holders. His most attractive trade was the currency with a 35% upside, assuming one could muddle through the complications. With any hold-out resolution voted on by Congress, one could expect increased pressure on Macri; if the Peronistas saw the possibility of a successful result, they may want to participate and not derail the process, but there was a need for proper brokering and “massaging” in this situation. He worried about the $1.5 billion floating rate notes (FRN’s) that might be subject to negotiation and wondered what might derail that process. On the other hand, he thought the US was becoming more supportive (even trying to make Argentina a success story) and that might spill over into other LatAm countries as Argentina was becoming less “left”. And, in fact, the international community was also becoming more supportive, with the IDB approving a $4.5 billion loan quickly.

Gutierrez viewed the symbolism in reaching a deal with the hold-outs was crucial, as the damage done to the confidence of the investor community needed urgent repair. He declared the current Cabinet the best one could hope for, the “who’s who” of economic consultants, with much talent and capacity to diagnose and implement solutions. While there was a considerable amount of euphoria when Macri was elected, and he seems to actually be making changes, he has to contend with the fragile majority, plagued with still powerful opposition. “If the economy doesn’t move soon [and if growth is not high], the honeymoon period will disappear and the Peronists will rise [and take to the streets]”. By political necessity, Macri must do as much as possible early on (including expenditure cuts). There were commodity price risks and fracking was seen as attractive (although not at the current oil price levels).

Stolper provided a summary of the 4 main buckets of lawsuits still outstanding:

 

(1) NML and Aurelius’ ratable payment argument, where cert was denied by the Supreme Court and the stay was lifted,

 

(2) the Argentine law bonds, with Citibank as the custodian where payment was made initially but then was swept into the injunction (case is on appeal and a hearing date was set for oral argument by the exchange bondholders),

 

(3) the “me-too” litigation, which is larger than (1) although NML and Aurelius are also part of (3), and where the issue was how to calculate damages and who owned the bonds during the requisite period in question (summary judgment was granted, ratable payment was applied, with Argentina appealing the decision and its brief due at the end of February and the Court of Appeals deciding possibly at the mid to end of the Summer) and

 

(4) BONAR 2024 bondholder action filed in 2014 to amend the pleadings to obtain the same ratable payment relief as in (1), with much litigation surrounding the discovery argument (where the Supreme Court ruled two years ago that there was no limit to plaintiffs’ discovery request around the globe, except for military and diplomatic assets) and Judge Griesa at a December 17 hearing exhibited profound frustration at the whole process and attempted to appoint the same Special Master as in (1), but Pollack refused.

 

In addition, there was still outstanding the ICSID ruling with Italian bondholders, litigation in the UK, where plaintiffs were granted permission to gain access to Argentina’s property, and a sideline litigation regarding funds sitting with the US and UK Trustees.