Elliott Adversaries Grow as Mexico Joins Fight: Argentina Credit

Latin America’s two biggest countries are throwing their support behind Argentina in its legal dispute with disgruntled creditors, boosting optimism the nation will stave off a second default in 13 years.

Brazil and Mexico filed briefs supporting Argentina, which has asked the U.S. Supreme Court to review lower-court orders blocking the country from making payments on its restructured debt unless it pays claims from its 2001 default in full to creditors including billionaire hedge-fund manager Paul Singer’s Elliott Management Corp. Those rulings, if left intact, would set a precedent that will make it harder for countries to renegotiate defaulted debt, Brazil and Mexico said.

JPMorgan Chase & Co. and Credit Suisse Group AG say the regional support bolsters the odds the Supreme Court will ask for the opinion of President Barack Obama’s administration, which may push back the conclusion of the case to as late as next year. The speculation is bolstering a gain in Argentine bonds, whose 4.6 percent increase this month is the biggest among emerging-market nations tracked by JPMorgan.

“They’ll show to the Supreme Court that this is a global issue rather than just a matter of rule of law of the U.S.,” Daniel Chodos, a strategist at Credit Suisse, said in an e-mailed response to questions. “They will likely get the attention of the Supreme Court.”

French Support

Stephen Spruiell, a spokesman at Elliott, didn’t return a voicemail and e-mail seeking comment on the briefs.

Jesica Rey, a spokeswoman for Argentina’s Economy Ministry, didn’t reply to an e-mail seeking comment.

Brazil filed a friend-of-the-court brief yesterday in support of Argentina’s request, saying that if upheld, “the injunctions will cast a shadow over the entire global sovereign debt market.”

In its brief, Mexico said the appeals court decision “has empowered private bondholders to jeopardize the economy of a sovereign nation.”

France said in a brief filed yesterday that the decision would have “adverse consequences” on a country’s ability to engage in orderly and negotiated debt restructurings as a means to prevent default. Nobel laureate Joseph Stiglitz submitted a brief backing Argentina as well.

So-called amicus briefs were due yesterday and require notification of the attorneys in the case 10 days before their due date. Holders of defaulted bonds have until May 7 to reply.

Argentina defaulted on $95 billion of bonds in 2001. While about 93 percent of creditors accepted losses of 70 cents on the dollar in the country’s 2005 and 2010 debt restructurings, holdout investors sued for full repayment.

Never Pay

Under the Aug. 23 appeals court decision, Argentina must treat all of its creditors equally and can’t pay investors who accepted the terms of the restructuring while denying payments to those who didn’t. Argentine President Cristina Fernandez de Kirchner has vowed never to offer better terms to creditors she’s dubbed “vultures.”

The South American nation argues that the ruling violates its sovereignty and that the appellate court didn’t properly apply the Foreign Sovereign Immunities Act, which limits lawsuits against foreign governments.

“They coerce a foreign sovereign into satisfying a money debt with immune assets,” Argentina wrote in its petition.

The briefs by Mexico, Brazil and France may compel the highest court to ask the solicitor general, the federal government’s top Supreme Court lawyer, to express an opinion at this stage of the case, according to Vladimir Werning, an economist at JPMorgan.

‘Event Risk’

If asked, Solicitor General Donald Verrilli would have no deadline for filing his brief, although his office generally tries to file briefs in time for the court to act before its nine-month term ends in late June. The Supreme Court granted Elliott a 44-day extension for filing its reply to Argentina’s petition. Given the delays, it’s becoming more likely litigation will be extended into 2015, Werning said.

“For the market, the longer horizon in which this issue will be dealt with reduces near-term event risk,” Werning said in a telephone interview from New York. “Things can drag on here. That’s positive.”

The cost to protect against an Argentine default over the next five years fell 8.1 basis points at 5:00 p.m. in New York to 1,894, the highest in the world, according to CMA prices.

In April 2012, the U.S. government sided with Argentina in its lower-court appeal, saying that if upheld, the orders could hurt other restructurings by rewarding investors who hold out while punishing participants. The Obama administration also called the orders “impermissibly broad” and harmful to U.S. foreign relations.

Paris Club

Jorge Mariscal, regional chief investment officer for emerging markets at UBS Wealth Management, says the support from Brazil, Mexico and France may not be as influential as bondholders would like.

“This is a highly politicized issue, and the U.S. Supreme Court knows this well,” Mariscal, whose firm oversees about $1 trillion, said in an e-mailed response to questions. “Therefore, while making headlines, the amicus briefs are unlikely to provide sufficiently strong legal arguments to sway their decision.”

Even if the briefs fail to persuade the Supreme Court, the growing support from other countries reflects the efforts taken by Argentina to repair ties overseas, according to Joaquin Almeyra, a fixed-income trader at Bulltick Capital Markets.

The Paris Club of creditor nations on March 14 invited Argentina to begin formal negotiations in May to settle its outstanding debt after government officials traveled to France to present an initial proposal. France is doing everything it can to speed up the negotiations, President Francois Hollande said at a March 19 press conference in Paris.

“What’s important is that Argentina is gathering allies and looking for solutions to its credit and investment problems,” Almeyra said in an e-mailed response to questions. “The market is preparing itself for what may be a change in Argentina’s outlook.”

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