16.02.2005 – 15:35

GCAB

GCAB Releases Legal Memorandum Summarizing Recent Argentine Legislation and Bondholder Remedies

New York (ots/PRNewswire)

MEMORANDUM
    New York
    Date: February 15, 2005
    To: GCAB
    From: Owen C. Pell
    Re: Recent Argentine Legislation and Bondholder Remedies

On February 11, Argentina promulgated legislation that put into
written law measures that are designed to negatively effect or
destroy the value of Bonds held by GCAB members and their
customers/depositors. As discussed below, the Argentine Legislation
may well create opportunities for GCAB and its members to pursue a
different and more efficient litigation path against Argentina. This
path would be based on the possibility of binding arbitration
proceedings against Argentina before the International Centre for the
Settlement of Investment Disputes ("ICSID").

This memo is preliminary in nature and is meant to provide an
introduction to the issues raised by the Legislation. Set forth below
are a brief review of (i) the current litigation situation; (ii) the
Argentine Legislation; (iii) the basis for relief under the ICSID
regime; (iv) the potential advantages of an ICSID award over a U.S.
court judgment; and (v) the so-called "Helms Amendment".

The Current Litigation Situation

As we have discussed, at present, GCAB's ability to oppose or
frustrate the Argentine Exchange Offer are limited. Argentina
defaulted on its debt in 2001. To date, some individual creditors
have received judgments in U.S. federal court, but have had little
success in locating, and no success in attaching or executing on, any
Argentine assets. In the 12 class actions that have been filed, Judge
Griesa has certified only two classes representing about US$ 3.5
billion of Argentina Bonds (about 4.3% of the outstanding principal
in default).

Although Judge Griesa allowed GCAB to appear in the Urban case as
an amicus curaie, and agreed with our view that Rule 23 of the
Federal Rules of Civil Procedure did apply to the Exchange Offer, he
made clear that he was not prepared to enjoin the Exchange Offer
under current circumstances. Judge Griesa, however, did order that an
Appendix that GCAB helped prepare and that was critical of the
Exchange Offer could be transmitted to bondholders with the class
notice. This (and GCAB's successful amicus appearance) was a fairly
unprecedented result under U.S. law, and was a first in any debt
restructuring litigation. Nonetheless, these victories did not block
the Exchange Offer, they simply shifted the focus of the battle to
the public markets where GCAB has been waging an effective campaign
to convince bondholders not to tender into the Exchange Offer.

Over the last few months, GCAB members have sought advice on their
options with regard to U.S. litigation and their ability to prevent
or impede the movement of funds by Argentina under the Exchange Offer
or otherwise. As you know, U.S. litigation options are limited. While
it would be better to have more certified classes, that probably will
not happen before the current termination date of the Exchange Offer,
nor is there any assurance that Judge Griesa would, in any event,
ever enjoin another version of the Exchange Offer. In addition, the
value (real or in terroram) of an eventual U.S. judgment, even a
significant judgment on behalf of large classes, appears limited
because Argentina has made itself seemingly judgment-proof. Moreover,
there is no assurance of intercepting Argentina's payments under the
Exchange Offer or under future debt offerings, including because
Argentina will employ trust structures and other measures to place
funds beyond the reach of current bondholders.

Finally, to date, Argentina has avoided official conduct that
might be labeled an "expropriation" or "repudiation" of the Bonds.
That is, the Exchange Offer does not preclude amendment, extension,
or future offers, and the Most Favored Creditor clause appears to
allow for side or other future settlements with Bondholders above the
levels offered in the Exchange Offer. The only contrary messages have
been "tough talk": oral comments by Argentine government officials
that the Exchange Offer would be the last offer and no other payments
would be made. As such, remedies premised on expropriation or
repudiation were not yet a focus because Argentina had been careful
in its Exchange Offer documents to avoid creating facts to support
that kind of claim.

The Argentine Legislation

The new Argentine Legislation appears to change the legal status
quo significantly (the following is based on unofficial translations)
in four ways:

    1. The Argentine Executive branch may not re-open the Exchange Offer
       authorized by the Legislature. (Article 2)
    2. The National Government may not make any kind of judicial, out of
       court or other private settlement involving the Bonds. (Article 3)
    3. The Executive branch is to take all steps necessary to delist the
       Bonds from any Argentine or foreign exchange. (Article 4)
    4. It appears that any Bonds deposited in Argentine courts (we have not
       pinned down what categories of Bonds this effects) and that have not
       already opted into the Exchange Offer will be replaced as of the
       Exchange Date under the authorizing legislation with the 2038
       Argentine Peso Bonds available under the Exchange Offer. (Article 6)

With regard to Bonds held outside of Argentina and payable outside
of Argentina under foreign law (e.g., U.S. Dollar bonds payable in
New York under New York law), U.S. law is clear that the Argentine
Legislation should not be recognized or applied. Thus, Argentina
should not be able to act against Bonds located outside of and
payable outside of Argentina.

The Legislation, however, appears to establish significant
evidence of repudiation or expropriation. The Legislation
specifically prohibits additional or extended versions of the
Exchange Offer and also precludes other settlements or private
transactions involving the Bonds. Thus, the Exchange Offer is final
and appears to leave dissenting Bondholders with no additional
consensual source of payment by Argentina (indeed, even full
repayment might be prohibited to the extent it is viewed as a
settlement outside the current Exchange Offer). Delisting is
recognized as something that harms the value of any security by
eroding liquidity and transferability. Finally, as to Bonds within
its reach, the Argentine government appears to be expropriating old
debt in favor of new, less valuable, debt. It also does not appear
that there is an effective remedy in Argentine courts with respect to
the effects of the Legislation or any delisting, let alone for the
existing payment defaults.

The ICSID Convention Regime

Argentina has signed 29 Bilateral Investment Treaties ("BITs"),
including with Belgium, Canada, France, Germany, Italy, Luxembourg,
the Netherlands, Spain, Switzerland, the United Kingdom and the
United States. The U.S.-Argentina BIT appears to be indicative:

    1. The Bonds should be viewed as "investments" which includes debt and
       contract rights. (Article I)
    2. Investments must receive the full protection of international law.
       They may not be "impaired" by "arbitrary or discriminatory measures."
       (Article II)
    3. Investments may not be "expropriated" or "nationalized" or subject to
       measures "tantamount to expropriation or nationalization." If such
       measures occur, "prompt adequate and effective" compensation must be
       paid. This is defined as "[(i)] equivalent to the fair market value of
       the expropriated investment immediately before the expropriatory
       action was taken or became known ... [and shall (ii)] include interest
       at a commercially reasonable rate from the date of expropriation,
       [(iii) be fully realizable; and [(iv)] be freely transferable at the
       prevailing market rate of exchange on the date of expropriation."
       (Article IV)
    4. Before initiating arbitration, the parties are to attempt to consult
       and negotiate for six months. (Article VII) Argentina's BITs with some
       European nations appear to have somewhat different consultation
       clauses, which will need to be reviewed.
    5. Argentina consents to disputes being submitted to arbitration,
       including under the Convention on the Settlement of Investment
       Disputes between States and Nationals of Other States, done at
       Washington, D.C., March 18, 1965 (the "ICSID Convention"). (Article
       VII) ICSID is located in Washington, D.C., and the ICSID Convention
       has been signed by 156 nations. Under the ICSID Convention, the
       Bondholders would name an arbitrator, who would then participate in
       the selection of a chairman for a three-person tribunal. In our
       experience, ICSID has been a sympathetic and fair forum for creditors.
    6. Any arbitral award is final, binding, and shall be paid without delay.
       Argentina must enforce awards in its territory. Also, ICSID awards
       become enforceable under the ICSID Convention and the United Nations
       Convention for the Recognition and Enforcement of Foreign Arbitral
       Awards (the "New York Convention" signed by over 160 nations), such
       that they have the force of judgments issued by the highest court of
       any signatory state. (Article VII)

The Legislation would appear to make official what Argentina has
been saying for several years with respect to its repudiation of
payment obligations on the Bonds, thereby creating an expropriation
or impairment that cannot be remedied under Argentine law, nor does
Argentina appear to be offering just compensation to remedy the
impairment. As such, the Legislation would appear to create a claim
under the BITs. Significantly, it may be possible to consolidate
Bondholder claims before an ICSID tribunal, such that GCAB
Bondholders from different nations may pursue their BIT-related
claims together.

The Advantages Of An ICSID Award

In our experience, nations pay their ICSID awards. Moreover, if
they don't, award holders have advantages over the holders of U.S.
judgments. U.S. judgments are not automatically respected under
non-U.S. laws, and are not accorded the weight given to ICSID awards
under the ICSID and New York Conventions, which are treated as
judgments of the highest court of any signatory. For example, under
current Argentine law, it is unclear how enforceable any U.S.
judgment on the Bonds would be in Argentina. Under ICSID and the New
York Convention, Argentina is obligated to honor ICSID arbitral
awards in Argentina.

In addition, an ICSID award may be used to attach broader
categories of property under the U.S. Foreign Sovereign Immunities
Act than a conventional U.S. judgment. Unlike regular judgments,
arbitral awards may be enforced against sovereign property used for
commercial activity without a showing that the property was used for
the commercial activity at issue in the claim. Accordingly, any and
all Argentine property used for commercial activity (including
property relating to future debt issuances) could be subject to
attachment and execution.

Thus, using the ICSID procedure may hold real advantages over U.S.
proceedings, including U.S. class action proceedings, especially
given the difficulties U.S. judgment holders have had to date in
enforcing their judgments outside of Argentina.

The Helms Amendment

Given the applicability of the U.S.-Argentina BIT, it also should
be noted that GCAB members in the United States may be in a position
to effectively compel Argentina to participate in an ICSID proceeding
relating to the Bonds. The so-called "Helms Amendment" "prohibits
U.S. foreign aid, including U.S. approval of financing by
international financial institutions, to a country that has
expropriated the property [or renounced a contract] of a U.S. citizen
or corporation ... where the country in question has not

    (A) returned the property,
    (B) provided adequate and effective compensation ... as required by
        international law,
    (C) offered a domestic procedure providing prompt, adequate and effective
        compensation in accordance with international law, or
    (D) submitted the dispute to arbitration under the rules of the [ICSID
        Convention] or other mutually agreeable binding international
        arbitration procedure."

In the 1990s, following the alleged expropriation of property
owned by an American investor, Costa Rica refused to submit to ICSID
arbitration. The American investor invoked the Helms Amendment and
delayed a US$ 175 million loan from the Inter-American Development
Bank to Costa Rica. Costa Rica consented to the ICSID proceeding, and
the American investor ultimately recovered US$ 16 million.

Conclusions

Based on the above, it appears that the Argentine Legislation
actually may present GCAB and its members with additional options for
putting pressure on Argentina and for pursuing their rights on their
Bonds.

As noted above, this memorandum is preliminary and is intended to
be a brief introduction to the issues presented. We would welcome the
opportunity to discuss the issues presented further, and/or to
provide additional information regarding ICSID.

About GCAB

GCAB was formally established in January 2004 by representatives
of all the major foreign bondholder constituencies of defaulted
Argentine debt, and consists of a broad-based group of holders. The
Steering Committee represents holders from Germany, Italy, Japan,
Switzerland, the USA and other countries. Its retail and
institutional members hold approximately US$40 billion in defaulted
debt of Argentina, accounting for 45% of the principal amount of
US$82 billion in outstanding Argentine debt and 73% of all
outstanding Argentine debt held outside Argentina. In order to
download its recent Investor Roadshow Presentation, the Urban Class
Action Appendix to the class notice distributed in connection with
the Urban Class Action filed in the United States, a GCAB general
membership form, position papers or obtain additional information,
please visit the GCAB website at http://www.gcab.org.

For those interested in more information about joining GCAB's
ICSID efforts please contact:  icsid@gcab.org

    GCAB Contact:
    Hans Humes      Greylock Capital Associates, LLC, +1-212-808-1818
    Nicola Stock    Associazione per la Tutela Degli Investitori in Titoli
                    Argentini +3906-676-7603

Investors in Argentine securities must make their own evaluation,
analysis and decision with respect to participation in any exchange
offer, restructuring, debt swap or other transaction, based on such
information as they deem appropriate after consultation with their
own advisors and without reliance upon this communication or any
materials contained herein or furnished herewith or upon GCAB or any
of its members, affiliates or advisers. Any such evaluation, analysis
and decision should be based on, among other matters, the investor's
own views as to the financial, economic, legal, regulatory, tax and
other risks and consequences associated with Argentina's exchange
offer, including but not limited to the consequences of declining to
participate in any exchange offer proposed by Argentina, the
structure, terms and conditions of any proposed new securities, the
Argentine political situation and economy, convertibility and
exchange rate risks, and risks posed by developments in other
emerging market countries.

GCAB and each of its members, affiliates and advisors disclaims
any and all liability relating to any exchange offer or other
transaction proposed by Argentina or any creditor's decision
regarding its participation or non-participation in any such exchange
offer or any transaction or any litigation pursued by or on behalf of
such creditor either individually or in concert with others, whether
or not such decision was made in whole or in part based on
information furnished by or obtained through GCAB.

The information contained herein or furnished herewith are for
discussion purposes only and do not constitute an offer or
solicitation of an offer to purchase or sell any security. These
materials are not intended to form the basis, in whole or in part,
for any investment decision or to provide a rating or recommendation
of any kind with respect to any investment opportunity. Factual
information contained herein or furnished herewith has been obtained
from sources believed to be reliable, but its accuracy and
completeness cannot be guaranteed. Any financial and economic
projections and pricing estimates contained herein or furnished
herewith are illustrative only and are based on assumptions that may
prove inaccurate or incomplete. Actual prices, performance and
results may differ substantially. GCAB and each of its members,
affiliates and advisors disclaims any and all liability relating to
these materials including, without limitation, any error in or
omission from the information contained herein or furnished herewith
and any duty to update the same in whole or in part. These materials
speak only as of the date hereof and are subject to change without
notice. The views expressed herein or furnished herewith do not
necessarily represent the position of any GCAB member, affiliate or
adviser. GCAB and its members, affiliates and advisers may have
positions and deal as principal in transactions in securities
discussed herein (or options with respect thereto), including
positions and transactions inconsistent with the matters discussed
herein.

Web site:  http://www.gcab.org

Contact:

Hans Humes, Greylock Capital Associates, LLC, +1-212-808-1818; Nicola
Stock, Associazione per la Tutela Degli Investitori in Titoli
Argentini, +3906-676-7603, both for GCAB