Argentina loses in the United States, but as the Rock said, it doesn’t matter

It isn’t quite as dramatic as the frigate trapped in Ghana, but Argentina lost a big one in the U.S. Court of Appeals last on October 26th. The court upheld an earlier ruling that Argentina broke its contracts when it offered to restructure the debts of its creditors on pain of repudiation for those who refused to take the deal. If everyone had taken the deal, that would be one thing; but the Argentine government can’t go ahead and pay some creditors but not others.

On October 25th, Foreign Minister Héctor Timerman provided a list of the assets that stiffed creditors have tried and failed to seize. It’s pretty remarkable:

1. In 2004, NML Capital (same fellows who have grabbed the frigate) grabbed 12 properties in the United States, including the residences of the Argentine ambassadors to the U.S. and the OAS, the residences of the heads of the Argentine army and naval attachés (in Maryland and D.C., respectively), the Washington offices of all three military attachés (Army, Navy and Air Force), the Argentina mission to the OAS (the whole damn building, at 1816 Corcoran Street N.W.), and four Air Force storage units. On August 3, 2005, the D.C. District Court ruled that all of these properties were covered by sovereign immunity.
2. In May 2007, creditors seized the presidential jet in California. A judge in California rapidly returned the wonderfully-named Tango One to Argentina within a couple weeks.
3. In September 2008, creditors went after the accounts of the Miami consulate and the New York tourism office. A New York district judge tossed that one out on September 30, 2009.
4. In May 2010, creditors grabbed Argentine funds owned by the Banco de la Nación Argentina in New York. That was overturned on September 24, 2010. To be honest, I do not understand this ruling: the Banco de la Nación is not the Argentine central bank, but state-owned commercial bank. (It is worth adding that two months earlier, in March 2010, the U.S. Supreme Court pre-emptively blocked an attempt to seize the nationalized pension funds. The Argentines quickly repatriated the funds after the SCOTUS decision.)
5. In April 2011, creditors seized an Argentina space ship. Really! They attached the SAC-D satellite. The Central District Court of California ruled against the creditors on May 25th, 2011; on June 6th the creditors announced that they would not appeal.
6. On August 1st and 9th of 2011 creditors managed to embargo central bank funds held in the Federal Reserve Bank of New York — that was overturned on June 26, 2012, when the Supreme Court refused to hear the case.
7. On May 16th, 2011, creditors claimed Argentine state-owned patents in New York worth about $1.2 billion. That failed on March 22nd, 2012. I’ll admit that I don’t understand this decision either; patents seem like commercial assets to me.
8. In December 2009, creditors went after Argentine central bank reserves in Switzerland. That took until October 17, 2012, to resolve, but the Argentines kept their money.
9. On April 3, 2009, creditors grabbed the accounts of the Argentine embassy in France. That was quickly lifted, although a final decision in Argentina’s favor didn’t come down until September 28, 2011.
10. On December 22, 2009, creditors seized an Argentine Air Force storage unit in Nanterre. The Argentines got that back on November 22, 2011.
11. Ditto, creditors tried to freeze the French accounts of the Argentine military in August 2010. Judges overturned that within days.
12. Also in France in 2009, creditors claimed the General San Martín Museum in Boulogne Sur Mer. That was overturned on March 5th, 2010.
13. In Germany, the Argentine embassy’s accounts were frozen on April 23, 2003. A court ruled against the creditors on December 6, 2006, and the German supreme court confirmed it on July 4, 2007.
14. A second attempt to grab the Frankfurt consulate’s account in December 2010 failed in September 2011.
15. In Belgium, creditors froze the Argentine embassy’s accounts in August 2009 ... and still have them frozen! The case has been appealed multiple times, with varying decisions, and is now going to be decided in early 2013. Precedent is on Argentina’s side.
16. Ditto creditors grabbed the Argentine Agriculture Commission to the European Union in Brussels. That one is still in court but the smart money is on Argentina.
17. In Italy creditors grabbed a whole bunch of stuff, but the Italian high court declared that Argentina enjoyed general immunity on May 27th, 2005.

In short, courts have gone out of their way to protect the Argentine government. In most of these cases, the decisions have been clear-cut, but even in the fuzzy cases of #4 and #7 the Argentines have won. So why should this recent decision matter?

Well, mostly it doesn’t. The decision means that Argentina can no longer make payments on its restructured debt in the United States. In December, Argentina is supposed to make $3.3 billion in coupon payments in New York, so it looks like a big deal. Thing is, Argentina has three simple options:

1. Pay the holdouts according to the original deal, while paying the holders of restructured debt the new payments. Plausible ... but in addition to the cost, it would open a host of new lawsuits and be a political humiliation. Ixnay on this option.
2. Pay outside the United States. Sounds easy, but all it would take is a few holdouts to push Argentina into technical default and trigger all the credit default swaps on the debt. Argentina could restructure the debts as domestic law with the agreement of 85% of the creditors ... but that would also trigger the credit default swaps even if Argentina remains current on all payments. Of course, the Argentine government won’t be on the hook for the swaps. Since it can’t issue new debt anyway, there really isn’t much downside.
3. Screw everybody. Just stop paying.

Me, I vote for option (2), but it doesn’t matter. Argentina is going to go into technical default, the insurers are going to lose money, and the holdout creditors are going to be no closer to being paid. Plus, Argentina is also going to get its ship back, although like Jon Rabinowitz, I kinda hope that it doesn’t.

Comments

[Federico]

Hey Noel, what about the option of appealing to the Supreme Court? Given a) the implication of the ruling on future sovereign restructurings and b) possible effects on intermediary banks it seems like the Supreme Court might want to take up the case and even shoot down some of Griesa's rulings...

[Noel Maurer]

My guess is that Argentina will take it up to the Supreme Court, but I doubt that they'll overturn this particular ruling.

I can't speak to the pari passu argument, but my instinct is that the Supreme Court won't take the appeal. As far as enforcement is concerned, the Court already decided in Weltover that the issuance of sovereign debt was a commercial activity under the FSIA.