Argentina was given an unexpected boost in its battle with bondholders over $100bn of defaulted debt this week when a New York court quashed attempts by US creditors to derail a similar debt restructuring by the Province of Mendoza.
As Argentina geared up to file its final debt proposal with the US Securities and Exchange Commission in the week ahead, a New York judge lifted a restraining order against the Province of Mendoza's own $250m restructuring proposal — a case which is seen as precedent-setting for any legal action against Argentina.
The court's move, said one New York analyst, “is a positive for the Argentine government because it means if it has a timetable for launching its debt restructuring and fears that lawsuits will get in the way, at least what was attempted by Greylock with Mendoza failed.”
Greylock, a US hedge fund and prominent member of the Global Committee of Argentine Bondholders (GCAB), had won a temporary restraining order against the Mendoza restructuring proposal.
The order was based on Greylock's demand that sovereign immunity waivers should stay in as bond covenants and not be amended, as Mendoza has proposed.
Sovereign immunity waivers in bond covenants give creditors the right, after a default, to seek payment by attaching other sovereign assets to their claim, if the sovereign does not repay its bonds.
Both Mendoza and Argentina are seeking to change non-payment terms in their defaulted bonds to render investors who do not want to participate in the restructuring impotent.
“The national government is expected to seek to change the non-payment terms, for example listing clauses, sovereign immunity clauses [and] acceleration clauses of 152 bond issues, in an effort to turn the defaulted bonds illiquid and almost worthless and thus ‘persuade' bondholders willing to hold out to participate in the debt exchange,” said Goldman Sachs in a report.
That doesn't mean, however, that bondholders won't find other legal loopholes to hold up the Argentine restructuring in the courts.
Greylock has at least acknowledgement from Judge Baer's ruling that it maintains its right to sue the province for the default of the bonds being restructured.