July 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 Judge Griesa to lead the negotiations between the judgment holders and the Republic of Argentina, issued the following statementi: "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 Argentinesii, the Governor of Buenos Airesiii, the Mayor of Buenos Airesiv, labor leadersv and even the U.S. Department of Statevi, on which Argentina had previously relied for supportvii. Instead, President Kirchner appears to be following the seemingly self-interested recommendationsviii 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 29th (“Argentina Brief: Default or No Default, That is the Question”), the Government’s 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. Courtix, 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 June 18th (“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 Government’s 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.

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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 Judge Thomas Griesa’s] 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 Griesa’s 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 can’t 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 Jacobson, 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 Court’s 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 action—either directly or through any representative, agent, instrumentality, political subdivision, or other person or entity acting on behalf of the Republic—to 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 Court’s 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. ”