Unsigned deals and roguish bonds
IN almost any reasonable sense, Argentina's 15-year battle over its 2001 debt default ended last month when Argentina reached an agreement with its main holdout creditors and Judge Thomas Griesa agreed to lift the injunction preventing Argentina from paying its debts. But the saga continues, and just this week this insane thing happened: Attorneys for Red Pines LLC, a unit of Varde Partners, say the investor entered into a settlement agreement with Argentina that was later cited by the nation as evidence of its progress with creditors, and reason to lift the injunction. Yet after the court agreed to do so - - the decision that's currently under appeal -Argentina changed its stance, Sabin Willett, a partner at Morgan, Lewis & Bockius LLP, said in an emergency motion filed last week. The government said in a March 21 filing that Red Pines was"mistakenly" submitted to the court in its list of settlements reached with creditors.
See, Argentina reached a number of agreements with its holdout creditors. It attached those agreements to a filing with Judge Griesa to argue
See, we are not mean to our creditors any more, we are reasonable and compromising and nice, you should lift the injunction and allow us to return to the capital markets. And he did. (Sort of: It's up on appeal, though the Justice Department supports him.) And then Argentina was like, hahaha no, just kidding, we don't actually have an agreement with Red Pines. Because -- this is true -- they never signed it. Yes, sure, they told the court that they had an agreement. And yes, sure, they filed that agreement with the court. But anyone who has watched enough television shows about lawyers would have been able to tell that it wasn't a real agreement, just by flipping to the last page:
Yoink! Argentina explains, in a footnote to its brief on appeal, that it "subsequently determined that the submitted agreement provided for payment with respect to claims that are time-barred" and so never signed it. The idea is that Red Pines, like several other bondholders, didn't get around to suing on its bonds before the statute of limitations expired, and so it doesn't have a valid claim to get paid --and "Argentina can't make payments that its lawyers have deemed unnecessary." Honestly that does not strike me as all that serious a concern? Just pay the guys, you know? Especially the ones you already have agreements with? (There are others, including two that Argentina did sign but then "asked those parties, in the interest of fairness, to amend the agreements to remove payments related to time-barred claims.") You can see why the main holdouts' agreement with Argentina includes intricate escrow mechanics for any fundraising that Argentina does before paying them off, and why the holdouts are opposed to just casually lifting the injunction without any further court protection. They may be paranoid, but Argentina really does seem to be out to get them. I have said some mean things about Credit Suisse over the last coupleof days, but honestly it might be my favorite big bank, just for its dreamily artistic approach to capital and financing. The way bank capital regulation works is, basically, you have to quantify a bunch of risks, and then you need to have enough equity capital to protect you against those risks. And regulators are always finding new risks and demanding that banks quantify them and have capital against them. But meanwhile Credit Suisse is always finding new ways to sell those risks to someone else, so it doesn't need to hold as much capital. This led Credit Suisse to what might still be my favorite trade ever: Credit Suisse had some derivatives, and regulation required it to quantify and hold capital against the risk that its derivative counterparties wouldn't pay Credit Suisse what they owed. So Credit Suisse packaged that risk into securities, gave some of the securities to its own bankers as part of their bonuses (surprise!), hedged the rest of them by buying yet another derivative from yet another counterparty, and then agreed to fund any amounts that the counterparty owed under the derivative. Did you not follow that? It's okay if you didn't; it is a Möbius strip of derivatives, and anyone who does grasp it in its entirety, even for an instant, is immediately raptured. (Eventually regulators decided it was too beautiful to live, and nixed it.)