The opinion of the court was delivered by: SWEET
Plaintiff Elliott Associates, L.P. ("Elliott") has moved by order to show cause for writs of prejudgment attachment pursuant to Fed. R. Civ. P. 64 and Article 62 of the New York Civil Practice Law and Rules (N.Y. CPLR § 6201 et seq.) against the assets and interests of Defendants Republic of Peru ("Peru") and Banco de la Nacion ("Banco") (collectively, "Defendants"). For the reasons set forth below, the writs of attachment will be denied.
Banco is a foreign financial institution organized and existing under the laws of Peru with its principal place of business at Av. Nicolas de Pierola 1065, Lima 1, Peru.
Peru is a foreign state as defined in 28 U.S.C. § 1603(a).
Elliott commenced these actions on October 18, 1996 in the Supreme Court of the State of New York, County of New York, seeking money judgments based upon allegations of Banco's default under certain written loan agreements and Peru's default under a written guaranty securing certain loan agreements. Peru and Banco removed these actions to this Court on October 21, 1996.
Plaintiffs filed the instant motions by orders to show cause on October 30, 1996. Oral argument was heard on November 19, 1996. Post-argument submissions were received until December 4, 1996, at which time the matter was deemed fully submitted.
This action arises against the backdrop of Peru's efforts to resolve its foreign debt crisis. The history of the Peruvian debt crisis is fully canvassed in the prior opinions of this Court in the related action, Pravin Banker Assocs. v. Banco Popular del Peru, No. 93 Civ. 0094. See Pravin Banker Assocs. v. Banco Popular del Peru, 165 Bankr. 379, 381-82 (S.D.N.Y. 1994) ("Pravin I"); see also Pravin Banker Assocs. v. Banco Popular del Peru, 1995 U.S. Dist. LEXIS 2730, No. 93 Civ. 0094, 1995 WL 102840 (S.D.N.Y. March 8, 1995) ("Pravin II"); Pravin Banker Assocs. v. Banco Popular del Peru, 895 F. Supp. 660 (S.D.N.Y. 1995). A brief synopsis of the relevant history is provided here.
In March 1983, Peru determined that it had insufficient foreign exchange reserves to service its foreign debt. In an effort to resolve its liquidity problems, Peru entered negotiations with the Bank Advisory Committee for Peru (the "BAC"), a committee consisting of representatives of Peru's major commercial creditors. The BAC and Peru negotiations culminated in the imposition of limitations on the ability of privately and publicly owned Peruvian companies and banks to repay debt on foreign currency loans. The negotiations also yielded letter agreements perfected on May 31, 1983 (the "Letter Agreements") among, inter alia, Peru, Peruvian banks and their foreign creditors restructuring debts owed to the creditors.
After further negotiations stalled in 1984, Peru imposed further restrictions on payment of foreign exchange debt to prevent the depletion of its reserves. As a result, Peru fell into arrears on debts to various multinational organizations, foreign nations, and foreign commercial lenders.
In March 1989, United States Treasury Secretary Nicholas Brady revised United States policy on international debt. The new policy, known as the "Brady Plan," encouraged commercial bank creditors to voluntarily reduce the debt obligations of poor countries, such as Peru.
Beginning with the election of President Alberto Fujimori in 1990 and continuing with agreements between Peru and the International Monetary Fund, Peru began to restructure its economy. By late 1992, Peru could report substantial improvements resulting from the restructuring, including control over previously explosive rates of inflation. Although Peru has increased its reserves, Defendants maintain that Peru's outstanding foreign debt obligations still exceed the reserves available to service such debt. Declaration of Jorge Peschiera in Opposition to Writs of Attachment ("Peschiera Decl.") PP 12-14.
Peru has recently entered into a new round of negotiations to repay its commercial creditors. On October 27, 1995, Peru and the BAC announced an agreement in principle for a debt restructuring plan designed in accordance with the policies of the Brady Plan. The proposed restructuring covers virtually all of the external commercial debt owed by Peru and Peruvian public and private-sector debtors, including the debts involved in this lawsuit.
On June 4, 1996, Peru and the BAC issued a term sheet setting forth the specific elements of Peru's proposed "Brady" debt restructuring agreement (the "Brady Agreement"). Roughly 180 creditors, collectively holding 99% of Peru's commercial debt, have indicated that they will participate in the Brady Agreement. Peru and all of the creditors represented on the BAC have signed the agreement, and Defendants expect the remaining creditors to sign in the coming weeks. According to Defendants, only Elliott and Pravin Banker Associates, the plaintiff-creditor in the Pravin cases previously before this Court, have openly opted out of the Brady Agreement and determined to enforce their debts by other means. The Brady Agreement is scheduled to close on December 20, 1996, at which time funds for the closing, including escrow and collateral arrangements, will be within the jurisdiction of this Court, and thus subject to attachment.
II. The Debts Held by Elliott
On February 1, 1996, this Court entered judgment for Pravin Banker Associates, Ltd. in the amount of $ 2,083,234.71. Peru's motion before this Court for an emergency stay was denied on February 8, 1996. After soliciting and receiving comments from the Executive Branch, the Second Circuit also denied a motion for an emergency stay on April 12, 1996. The appeal in Pravin Banker is sub judice, having been argued on September 11, 1996.
On March 29, 1996 and April 19, 1996, Elliott purchased $ 20,682,699.04 (face value) of debt arising from certain of the May 31, 1983 Letter Agreements. The first purchase of debt took place after the denial of the stay by this Court in Pravin Banker. The second purchase of debt took place seven days following the denial of the emergency stay in the Court of Appeals. Although not part of the record here, it is presumed that these purchases were made in the so-called secondary market at an undisclosed discount from the face value sought to be enforced in this proceeding. Plaintiffs have attached to the complaint against Banco (the "Banco Complaint") one such assigned Letter Agreement, the original parties to which were Banco, Wells Fargo Bank, and Peru. Pursuant to these Letter Agreements among Banco and Banco Popular del Peru (another Peruvian state-owned bank) as obligors, and Peru as guarantor, and the banks and financial institutions parties thereto (together with their successors and assigns, collectively, the "Creditors"), the Creditors agreed to extend the time for repayment of certain loans. Elliott purchased and was assigned all of the right, title and interest of the Creditors.
Pursuant to the 1983 Agreements, Banco agreed to repay loans in the amount of $ 7,000,000 (in principal) on extended maturity dates and to make quarterly interest payments with respect to the loans at a variable interest rate calculated in accordance with the terms of the 1983 Agreements.
The 1983 Agreements further provide that an "Event of Default" occurs if, among other reasons, any principal or any interest on the Loans or any other sum payable by Banco thereunder shall not be paid in full within ten days of when due.
The 1983 Agreements further provide that Banco shall pay, on demand, all of the Creditor's costs and expenses to enforce the 1983 Agreements, including reasonable attorneys' fees and disbursements.
Pursuant to a guaranty, also dated May 31, 1983, Peru agreed to guarantee the repayment of certain debts owed by Banco and Banco Popular under the Letter agreements. Under Section 3 of the guaranty, Peru agreed that its liability with respect to the guaranty would be absolute and unconditional irrespective of any circumstance which might constitute a defense available to Peru.
Elliott purchased and was assigned all of the right, title and interest of certain Creditors with respect to an aggregate total $ 20,682,699.04 (face value), together with all accrued interest thereon. The total consists of the $ 7,000,000.00 borrowed by Banco and $ 13,682,699.04 borrowed by Banco Popular, all of which was guaranteed by Peru.
Pursuant to the 1983 Agreements and the Guaranty, Peru agreed to repay the Loans on the ...