Garrido Law Firm

Slow painful ending for Trial of the Century

Source: Financial Times

Is it the beginning of the end for what enthusiasts like to call “the trial of the century” in the world of sovereign debt restructuring?

Well, perhaps, but there could still be an painfully slow ending to a trial that has dragged on for the best part of a decade, after Argentina filed a petition on Tuesday – right on deadline – seeking a US Supreme Court review of an order to pay $1.33bn to “holdout” bondholders who refused to accept restructured debt after Argentina’s 2001 debt default.

There are now three possible scenarios as to how things could go for Argentina at the Supreme Court.

The worst possible outcome for Argentina would be if the court simply rejects the petition and decides not to take the case, which ought to happen by the end of May. That could trigger Argentina’s second debt default in little more than a decade. Cue catastrophe.

A second possibility is that the court will at least consider the case. If so, a decision might not be made until the end of the year, although few expect the ruling to be favourable for Argentina given its success in the trial so far.

But there is some optimism that Argentina could yet succeed in achieving the third and best possible outcome, in which the court would ask the US Solicitor General to consider the case first before taking on the case.

That could potentially prolong the agony until late next year, by which time President Cristina Kirchner’s government will be on the way out, and it will all become someone else’s problem. Phew.

The optimism is due, in part, to the fact that Argentina has hired one of the US’s top lawyers, Paul Clement, who was a former solicitor general under President George W Bush – although ironically, so was the lawyer now representing the “holdouts”, Theodore Olson.

Still, if the Obama administration can be persuaded to support Argentina in the case by filing an “amicus curiae” – something that is not inconceivable, despite poor relations between the two countries – that would significantly raise the chances of the Supreme Court referring the case to the solicitor general.

As the Argentine embassy in the US pointed out in a statement on Tuesday, there is a lot at stake:

“If left unreviewed, the lower court orders could render future sovereign debt restructurings virtually impossible; impede the smooth functioning of the international capital markets; jeopardize New York’s status as a key global financial center; and negatively affect foreign relations.”

But there is yet another possibility. A number of interested parties, not least those holding restructured Argentine debt who would like to avoid a default, would like to see a negotiated out-of-court deal between Argentina and the holdouts.

As Eugenio Bruno, an Argentine lawyer at Estudio Garrido who has come up with one of the most credible solutions for reaching such a deal, put it to beyondbrics:

“It will be very difficult for this to be resolved through legal avenues because if the final ruling went against Argentina, they would not be able to pay. And if it was favourable, [the holdouts] will try to embargo any new debt and other assets, and Argentina will never be able to access the markets. The way has to be extrajudicial.”

There is just one small snag: getting Argentina and the “holdouts” to even talk to each other civilly – let alone reach any kind of agreement.