J uly 25 2014

Joshua Rosner
646/652-6207
jrosner@graham-fisher.com





Please refer to important disclosures at the end of this report.
Argentina: The Real Holdouts

Yesterday, Daniel Pollack, the Special Master appointed by J udge Griesa to
lead the negotiations between the judgment holders and the Republic of
Argentina, issued the following statement
i
:

"Representatives of the Republic of Argentina and their lawyers met with me
today. Representatives of the Bondholders and their lawyers also met with
me today. After speaking with both sides, separately, I proposed and urged
direct, face-to-face talks between the parties. The representatives of the
Bondholders were agreeable to direct talks; the representatives of the
Republic declined to engage in direct talks.

It seems that, with time running short before a disastrous default, the
Kirchner administration has chosen to ignore the economic and political
benefits of negotiating a settlement that is supported by the vast majority of
Argentines
ii
, the Governor of Buenos Aires
iii
, the Mayor of Buenos Aires
iv
,
labor leaders
v
and even the U.S. Department of State
vi
, on which Argentina
had previously relied for support
vii
.

Instead, President Kirchner appears to be following the seemingly self-
interested recommendations
viii
of her attorneys at Cleary Gottlieb Steen &
Hamilton to default and then restructure outside of the jurisdiction of the
U.S. Courts. As a result, with the preponderance of evidence and analysis
supporting negotiations and settlement, it appears that the advice received
from Cleary, Gottleib is demonstrating who are the real holdouts in this
dispute.

As we wrote in our note of May 29
th
(Argentina Brief: Default or No
Default, That is the Question), the Governments lawyers appear to be
advising chaos, which, of course, benefits the lawyers, not the client. After
all, while the economic benefits of foreign direct investment, lower cost of
debt, reduction in inflation and the many other direct results of a settlement
are clear, such a settlement would end the massive legal fees received by the





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law firm. Instead, by pushing the Government to avoid settlement and to
choose default, even in violation of the Orders of the U.S. Court
ix
, the law
firm would place its client in direct violation with several Court Orders
while continuing to benefit from millions of dollars of legal fees.

Moreover, by pushing the Argentines to default, the law firm may be
attempting to minimize its own liability for poorly advising Argentina on the
structure of the RUFO Clause (Rights Upon Future Offers) in the highly
unlikely event that a settlement with the holdouts results in a colorable
RUFO Clause claim. Independent attorneys we have spoken with do not see
this as a real risk. As we stated in our note of J une 18
th
(Cry for me
Argentina): Argentina has stated that, because of Argentine law (RUFO
Clause), it cannot settle with the holdouts on terms that are better than the
exchange holders. Given that any resolution of this impasse would be
defined as a settlement of a court order, rather than an exchange of
securities, this seems to be an incorrect interpretation of their own law. In
other words, a settlement, whether it triggers RUFO or not, is all downside
for Cleary, Gottlieb.

As a result of the Governments continued incalcitrant stance, her
unwillingness to engage in direct negotiations, her attempts to pay exchange
holders while ignoring the order that she must pay the plaintiffs in
proportion and at the same time, we expect that Argentina is headed to
default. While the Argentines continue to say that they will not default,
justifying that statement with the implausible argument that they have
transferred the funds, for the benefit of exchange-holders, to Bank of New
York Mellon, the reality is that the exchange bond agreements recognize that
a condition of default exists until the monies have actually been paid to these
bondholders. Moreover, failure to pay the plaintiffs, according to the
judgment, regardless of whether of not the exchange bondholders have been
paid, represents a continuing default.

As we have stated previously, Argentina should engage an independent
negotiator to lead its settlement talks and should recognize that the path
toward settlement is in direct conflict with the interest of her attorneys.






- 3 -
Unfortunately, with time running out, it appears that President Kirchner has
yet to see that her own interests, and the best interests of the Argentine
people, are being poorly served by continuing to take the advice of lawyers
who have more to gain by pushing her to become a holdout and to default.
After all, while the Argentine public will suffer from another default and,
once again, isolate herself from the global community, the lawyers will
benefit from being able to bill for all of the work involved with further legal
actions and the management of a new restructuring. As a result, we remain
cautions on any investments in Argentina.































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i
http://www.digitaljournal.com/pr/2078544
ii
http://www.interdependence.org/wp-content/uploads/2014/01/GFCo-Argentina-
Closing-the-Gap.pdf
iii
http://dealbreaker.com/2014/07/everyone-in-argentina-realizes-it-needs-to-pay-paul-
singer/ (See: The solution is to reach an agreement, and an agreement obviously means
paying.)
iv
http://www.buenosairesherald.com/article/165397/ba-city-mayor-macri-urges-the-govt-
to-pay-holdout-bondholders (See: The mayor of Buenos Aires City Mauricio Macri
reiterated his belief that Argentina should comply with [US J udge Thomas Griesas]
ruling that orders the country to pay holdout hedge funds in full by Wednesday.
I have said this since day one. We took this to court, we lost and now, even if we are
annoyed by the attitude vulture funds take, we have to comply with the judicial ruling.
We have to go and negotiate the best possible conditions for Argentina in Griesas court
and solve the problem, Macri said.)
v
http://dealbreaker.com/2014/07/everyone-in-argentina-realizes-it-needs-to-pay-paul-
singer/ (See: We cant let this situation go on for very long, said Eduardo Buzzi, head
of the Argentine Agrarian Federation, a leading farm group representing small-scale
farms nationwide. One way or another, we have to normalize this situation. It puts the
economy at risk. If the country defaults, it will raise financing costs and raise uncertainty
about the exchange rate.)
vi
http://uk.reuters.com/article/2014/07/03/argentina-debt-idUKL2N0PE1IW20140703
(See: Roberta J acobson, U.S. assistant secretary of State for Western Hemisphere





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affairs, said it was in Argentina's interest to normalize relations with all creditors and in
the interests of the country and the international community that Argentina fully
participate in the international financial system.)
vii

http://www.americanbar.org/content/dam/aba/publications/supreme_court_preview/briefs
-v3/12-842_pet_amcu_usa.authcheckdam.pdf
viii
http://seprin.info/2014/06/04/default-inminente-el-documento-difundido-por-seprin-
es-foco-del-debate-en-new-york/
ix
http://www.creditslips.org/files/proposed-order_lm.pdf See p. 10-12 which, among
other things, explicitly prohibit: 2. DECLARED that the formulation and design of the
scheme that is purportedly referenced in the Memorandum for the Republic to
restructure all of the external bonds so that the payment mechanism and the other related
elements are outside the reach of US courts violates this Courts Orders of March 5,
2012, and October 3, 2013, which prohibit the Republic and its agents from formulating
or designing any alteration of the means by which the Republic makes payments on the
Exchange Bonds.
3. ORDERED that the Republic is now and is permanently PROHIBITED from taking
any action or planning to take any actioneither directly or through any representative,
agent, instrumentality, political subdivision, or other person or entity acting on behalf of
the Republicto evade or attempt to evade the purposes and directives of the Amended
February 23 Orders, to render or attempt to render those Orders ineffective, or to
diminish or attempt to diminish the Courts ability to supervise compliance with the
Amended February 23 Orders without prior approval of the Court. This prohibition
extends to taking any step toward an action, or toward planning or devising a means by
which to take an action, to evade or attempt to evade the purposes and directives of the
Amended February 23 Orders, including, without limitation, the formulation or design of
any alteration, amendment, change, or exchange of the processes or specific transfer
mechanisms by which it makes payments on the Exchange Bonds, or the formulation or
design of any means by which the Republic might transfer, recreate, refinance, exchange,
or substitute obligations now existing under the Exchange Bonds through other debt
instruments, contracts, or securities in the future.