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Seeing Europe through Argentine default

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  • Seeing Europe through Argentine default

    Pension Pulse: Argentina's Last Tango With Bondholders?
    Argentina gets second reprieve from U.S. court on debt payment | Reuters
    Guest post: Time to ratchet up the pressure on Argentina | beyondbrics

    My guess sooner or later those bondholders that held out will get something, because giving them nothing is not possible.

    Long story short after Argentina defaulted and 90%+ bondholders agreed to a haircut and an exchange for bonds and other recompense at a fraction of prior value some bondholders didn't agree and pulled out "holdouts". These "holdouts" led by hedge funds and others are arguing that they should be treated like everyone else (after Argentina said they will never ever ever pay them). Them being treated like everyone else was under the laws of New York, in the USA since the bonds were issued under USA jurisdiction.

    Why this is interesting and will apply to Europe. Think about Greece, Italy, and others issuing bonds in jurisdictions like London, New York, Paris, Singapore, Hong Kong, or Berlin... etc...
    Imagine the predicament of a defaulted Greece having bonds issued in London under UK law with UK pulling out of Europe, denominated in Euroes, once Greece leaves the Eurozone. (if any of this happens).

    Just imagine the possibilities it could theoretically say that 1 New Drachma is officially = to 5,000,000 Euro (unofficially it can be anything else) the creditors don't have to take it... But just imagine how the retaliation could happen. In Argentina's case there were loans that are pulled to get the repayment going for development and other aspects. The other aspect is if the funds or Gold held by Greek state is in London, or what if it is in Greece but pledged as security but then not honored and they give bondholders the finger? Lots of interesting permutations. What about market access if they leave will Europe retaliate and Greece simply confiscate foreign holders assets as a fine for not taking the 1 New Drachma offer for 5 mill Euro? Just think if you do not take the offer you are fined 500 New Drachma in foreign currency if you are a foreign designated resident? lots of interesting things.
    Originally from Sochi, Russia.

  • #2
    What happened to sovereignty? It is funny as you always see US to tell other countries to fuck off when their courts have ordered that US owe money to this and that but when they do it in US courts, US demands other countries to pay. I find this very inequitable and hypocritical of US.

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    • #3
      Originally posted by Blademaster View Post
      What happened to sovereignty? It is funny as you always see US to tell other countries to fuck off when their courts have ordered that US owe money to this and that but when they do it in US courts, US demands other countries to pay. I find this very inequitable and hypocritical of US.
      Because the original bond was issued under US jurisdiction?

      If the bonds were not issued under US jurisdiction, then you're right, we don't have a say in it. But it was, meaning Argentines gave up their sovereignty in this issue.

      So why was the bond issued under US jurisdiction? Why didn't the Argentines issue these bonds in Buenos Aires?
      "Only Nixon can go to China." -- Old Vulcan proverb.

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      • #4
        Actually most of the bond holders that didn't accept the first Greek 'haircut' DO have their bonds in English law.

        "Not all the debts are governed by Greek law; some are covered by foreign (largely English) law where the rights of creditors are more protected." The Greek debt deal: A slight wrinkle | The Economist

        Something strikes me here: The majority of those holders of Argentinian debt held their bonds in US legal authority and likewise the majority of holders of Greek debt that didn't accept the 'haircut' held them in English legal jurisdiction. Why might this be? Perhaps because in the Anglo Saxon legal system, as opposed to continental system derived from Justinian originally, law always trumps State.

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        • #5
          Originally posted by gunnut View Post
          Because the original bond was issued under US jurisdiction?

          If the bonds were not issued under US jurisdiction, then you're right, we don't have a say in it. But it was, meaning Argentines gave up their sovereignty in this issue.

          So why was the bond issued under US jurisdiction? Why didn't the Argentines issue these bonds in Buenos Aires?
          My guess is investors wanted it that way and they were dollar denominated anyway. Argentina if it wanted to keep sovereignty could have issued peso bonds but didn't instead they went for dollar at lower interest rates (and in a diff sovereignty).

          Snapper you also have to consider that there is no inherent bias in third country. Yes, common law is better a bit but also if u think about it from a Eurozone/Euro perspective.
          If the bonds are issued in currency where both the issuer and the underlying currency suffer from credibility decline when they are not tendered(which is precisely what happened to a degree) ergo being not in the Eurozone helps not being "compelled" to tender them at bad prices.

          The other aspect is attachment at default and other ramifications if default comes around. Think of contracts held in UK clearing houses on behalf of continental governments.
          Originally from Sochi, Russia.

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