(The opinions expressed here are those of the author, a columnist for Reuters.)
By Alison Frankel
March 23 (Reuters) - Lawyers for three bondholder groups that have not reached settlements with Argentina sent letters this week to the U.S. Justice Department, arguing that the U.S. government should not reenter long-running litigation over defaulted Argentine sovereign debt.
The bondholder letters, sent by Milberg, Proskauer Rose and McDermott Will & Emery, allege that Argentina has refused to negotiate with small investors who collectively hold nearly $1 billion in defaulted bonds, despite recently reaching agreements with the majority of bondholders who declined to participate in previous sovereign debt restructurings, including the hedge funds NML Capital and Aurelius Capital.
As the bondholders’ letters to the Justice Department explained, the 2nd U.S. Circuit Court of Appeals will soon to hear arguments on whether to lift the pari passu, or equal footing, injunctions that pushed Argentina into settlement talks with other investors.
The holdouts said that without the leverage of the pari passu injunctions - which barred Argentina from making payments to exchange bondholders before it paid bondholders holding defaulted debt - they will be forced to swallow an unpalatable take-it-or-leave-it proposal from Argentina. They urged the U.S. government not to file an amicus brief backing Argentina’s position.
“Please do not endanger, for political or diplomatic reasons, my clients’ ability to obtain fair recoveries through the normal litigation process,” wrote Michael Spencer of Milberg, whose letter said he represents a group of bondholders holding defaulted Argentine bonds with a face value of more than $860 million.
“Please let the 2nd Circuit decide these appeals on their legal merits. Please do not let this become another example of wealthy and powerful interests (hedge funds and governments) obtaining favored treatment, while average people are passed by.”
Lawyers for the protesting bondholder groups said they sent the letters after another plaintiff in the case told them that Argentine officials had asked the U.S. government to submit an amicus brief to the 2nd Circuit.
Argentina’s lead lawyer in the bond litigation, Michael Paskin of Cravath Swaine & Moore, declined to provide a statement in response to my request for comment. Ginger Anders, the Justice Department official to whom the bondholder groups addressed their letters, declined to comment, but on Wednesday afternoon, the Justice Department filed a notice of appearance as an amicus on the 2nd Circuit’s docket.
The holdouts have reason to worry about the U.S. government siding against them. Back in 2012, when the 2nd Circuit was first considering the controversial pari passu injunctions ordered by U.S. District Judge Thomas Griesa, the Justice Department submitted an amicus brief backing Argentina’s interpretation of the critical bond contract clause.
In those days, Argentina’s administration was openly defiant of the U.S. court system, vowing it would never pay billions of dollars in judgments obtained by creditors. Even after the U.S. Supreme Court declined in 2014 to review the controversial pari passu injunctions, Argentina snubbed court-ordered settlement talks.
Now there is a new, more moderate administration in place in Argentina, and its economic policies have won praise from the U.S. government. President Barack Obama, who met with Argentine President Mauricio Macri Wednesday in Buenos Aires, said he was impressed at how quickly President Macri acted to “reconnect Argentina with the global economy.”
And in a statement last week by the U.S. Embassy in Buenos Aires, U.S. Treasury Undersecretary Nathan Sheets specifically cited Argentina’s willingness to resolve the bond litigation as proof that the Macri administration is sincere about restoring the economy.
Judge Griesa, who has presided over the Argentine bond litigation for 15 years, was sufficiently convinced of the new government’s good faith to order the pari passu injunctions to automatically dissolve when two conditions are met: Argentina’s legislature must repeal laws prohibiting settlements with holdout debt investors; and Argentina must actually pay investors with which it reached settlement agreements before Feb. 29, including NML and Aurelius.
Several bondholder groups, including the three that sent letters to the Justice Department this week, appealed Judge Griesa’s order to the 2nd Circuit, asking for the injunctions to remain in place. They claim that Argentina’s moderate talk masks the same “arrogance, obstinacy and delay” (to quote a bondholder brief by Duane Morris and Weil Gotshal & Manges) that the country has shown throughout the bond litigation. (Interestingly, NML also opposes lifting the injunctions, even though it has settled with Argentina.)
Argentina, meanwhile, said in its brief to the 2nd Circuit that Judge Griesa was well within his discretion to order the injunctions to dissolve. “What the district court once had the power to decree in order to alter behavior and incentivize good-faith settlement negotiations,” the brief said, “it manifestly has the power to relieve now that the behavior has changed and settlement is within reach.”
If the Justice Department wants a say in the final throes of this case, we’ll know by Friday, when the last briefs are due at the 2nd Circuit.
Reporting by Alison Frankel. Editing by Alessandra Rafferty.