Sunday, January 04, 2015

The end of RUFO, a Happy New Year's present for Argentina

One of the aspects of Argentina's debt agreements that made Nixon-appointed zombie judge Thomas Griesa's radical decision against Argentina and in favor of the vulture funds so dangerous was the RUFO clause (RUFO= Rights Upon Future Offers). It meant that if Argentina offered better terms to creditors who had not yet accepted restructuring of the debt than those who had agreed to it, all those who had previously agreed to restructuring could demand the same terms.

That means if Argentina agreed to the Nixon zombie judge's decision for the vulture funds, of which Paul Singer and his NML Capital are the main protagonists, all the other creditors could have demanded the same terms. And that would have put Argentina back into total default.

As of the new year, the RUFO clause has expired. The Buenos Aires Herald explains (RUFO clause expires at midnight 12/31/2014):

Expiration of the RUFO clause tonight, could technically allow President Cristina Fernández de Kirchner to improve the offer to holdouts but she has not made any secret that she does not like the idea.

“They said that after the RUFO clause was no longer an issue on January 1 we would run back to talks. But these vultures are losing their feathers,” the president told thousands of supporters shortly before the Christmas holiday. “And you know what? I reckon they’re going to end up looking more like clowns than vultures.” ...

Part of the reason why Fernández de Kirchner’s administration may not be in such a rush to come to an agreement is that since July, government intervention in the economy has reversed a sharp weakening of the black-market peso and shored up foreign reserves.

These two things alone could give Argentina enough financial flexibility to make it through until the October 25 vote.

While an attempted dollar bond top-up did not get as much adherence as the government was expecting this month, it underlined Argentina’s willingness to pay a high price to ease a liquidity crunch rather than settle with the funds.
TV Pública argentina reports on the expiration of the RUFO clause, Visión 7 - Cayó la cláusula RUFO: La negociación de la deuda 02.01.2015:

The RUFO clause could potentially still come back to haunt Argentina in some way, if another radical court decision declares that RUFO still applies because it was in effect when the decision was finalized.

The quotes that Tomás Lukin provides from Economics Minister Axel Kicillof indicate that Cristina's government isn't close to being ready to cave in to the vulture funds and their Nixon zombie judge.(Sin la cláusula RUFO, se abre otro escenario Página/12 2.01.2015)

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