Surprise, surprise. Judge Thomas Griesa, visibly upset at Argentina’s apparent thumbing of their nose at his legal rulings, ruled today that Argentina cannot change the legal domain for its debt.

Judge Griesa Argentina

Argentina’s debt domicile shift violating US court orders

Greisa was quoted as saying that Argentina shifting its debt domicile is a violation of current US court orders and cannot be carried out as planned.

Meeting with the Argentina’s lawyers, Cleary Gottlieb Steen and Hamilton, as well as lawyers for the holdout hedge funds, Griesa was quoted in a Reuters/CNBC report as saying Argentina has taken a “lawless position.”

While he was talking tough, he still saved an arrow in his quiver: he did not issue a contempt order against Argentina as he appeared to hold out hope that some sort of agreement could be worked out, saying a remedy “must be found,” according to the Reuters report.

Contempt order would work as gasoline on the fire

Lawyers for the debt holdouts had requested Griesa to grant an immediate contempt order and leave discussion of sanctions for later. Argentina’s lawyer, Carmine Boccuzzi, countered that a contempt order would not be productive for negotiations and would instead put “gasoline on the fire.”

Argentina’s law firm was apparently not consulted during the negotiations and the resulting offer, or more accurately lack of an offer, that the nation put on the table for the holdouts.  The judge was reported to be “appalled” that Argentina did not consult with Cleary Gottlieb, before formulating the offer.

Cleary Gottlieb’s memo to Argentina

As previously reported in ValueWalk, Cleary Gotlieb formulated a secret memo that outlined a number of potential paths Argentina could take.  One of the paths was the country default on its debt and then re-organize under local Argentina law.

The May 2, 2014 memo from the New York office of Cleary Gottlieb to the government of Argentina, marked PRIVILEGED AND CONFIDENTIAL ATTORNEY CLIENT COMMUNICATION, says the “best option for the Republic” is to default on the bonds and restructure the debt so the issue will “remain outside the reach of the US Courts.”  In Supreme Court testimony the government of Argentina had previously said it would abide by the court’s ruling and not default on bondholders.

ValueWalk analysis had repeatedly said Argentina was unlikely to offer much in the way of negotiation, and this path was the highest probability of all outcomes.  It is unknown if the recent developments indicate a softening of Argentina’s negotiating stance on the issue.