Argentina has offered to pay $6.5 billion to a group of hedge funds holding bonds it defaulted on 14 years ago in a historic effort by the nation to put a bitter legal battle behind it.
Montreux Partners and Dart Management, two of the hedge funds, have accepted the proposal, which would pay three-quarters of a $9 billion claim on defaulted bonds, according to emailed statements from Daniel A. Pollack, a court-appointed arbiter, and Argentina’s finance ministry.
The news comes after a week of high-profile talks between senior Argentine government officials and principals at a group of holdout hedge funds, so named for their refusal to partake in Argentina’s debt restructurings after its 2001 default and who have sought billions in bond repayments, according to a statement from Mr. Pollack.
Noticeably absent from the deal on Friday was NML Capital, a hedge fund owned by the billionaire Paul E. Singer, which has led the holdouts in years of litigation. Without the agreement of all six hedge funds, Argentina will continue to be locked out of international markets and foreign investment.
“The negotiations were intense, but civil, and I am pleased to report that enormous progress has been made,” Mr. Pollack said.
The legal fight has pitted a larger group of hedge funds against Argentina, a nation of about 43 million people. They have sought Argentina’s assets around the world, at one point seizing a navy ship in Ghana as collateral. At a low point of the standoff, neither side would talk to the other.
Earlier this week, Argentina struck a deal to pay $1.35 billion to another group of holdouts — Italian investors who had held onto defaulted bonds, paving the way for an agreement with some of the hedge funds. The fact that Argentina has been able to settle with some of the holdout hedge funds could apply pressure on the remaining hedge funds to resolve the dispute.
The legal battle harks back to 2001, when Argentina defaulted on billions of dollars in debt. Bondholders were given two chances to exchange the defaulted bonds for new, cheaper ones over the years, but some rejected the restructurings.
“This litigation has gone on for nearly 15 years, since the original Argentine default of 2001, and the proposal by Argentina is a historic breakthrough, which, if the conditions mentioned above are met, will allow Argentina to return to the global financial markets to raise much needed capital,” Mr. Pollack said. He added that he hoped the other hedge funds and Argentina would be able to “resolve their differences” and also reach an agreement.
Mauricio Macri, Argentina’s newly elected president, has pledged to resolve the dispute with the hedge funds as part of a broader plan to reform his nation’s economy.
It is unclear how soon Argentina would complete the offer, which requires congressional approval. Argentina’s Congress does not reconvene from a summer recess until March 1, although Mr. Macri has called special sessions in the Senate for Feb. 11 to expedite his appointment of Supreme Court judges and other officials.
If there is significant progress between the government and creditors over the proposal in the coming days, there is a chance the offer may also be debated during these special sessions, said Juan Cruz Díaz, a director at the Cefeidas Group, a political risk analysis firm in Buenos Aires.
Mr. Macri does not have a majority in either the Senate or the lower house, but he was bolstered this week when a group of lawmakers once loyal to former President Cristina Fernández de Kirchner, a political opponent of Mr. Macri, defected from her bloc in the lower house. They have promised to be collaborative, making Mr. Macri’s negotiations to pass pivotal legislation an easier task. Mr. Macri has also been maneuvering to gather cross-party support in the Senate.
Dart Management could not be reached for comment. A spokesman for Elliott Management, which owns NML Capital, declined to comment. Michael Straus, a principal of Montreux Partners, said he had nothing to add to the publicly issued statements of the special master and the government of Argentina.
Senators respond largely to the interests of state governors. Across the political spectrum, these governors are keen to increase funding by issuing their own debt in international markets, Mr. Díaz said. “I believe Macri is very close to securing congressional support for the offer,” he added.
Twelve years ago, NML Capital sued Argentina seeking full repayment — principal and interest. In 2011, a federal judge in Manhattan ruled that whenever Argentina paid one group of bondholders, it would also have to pay the holdouts.
The deal with New York creditors hit rock bottom under Ms. Kirchner, after the country defaulted on its debt again in 2014, after it failed to make a $539 million interest payment on newer discounted bonds.
“Default is not a mere technical condition, but rather a real and painful event that will hurt real people,” Mr. Pollack said at the time, after failed attempts to get NML Capital and the administration of Ms. Kirchner to sit down together.
The move left Argentina largely cut off from the international markets. Mr. Macri’s pledge helped usher in new talks and raised hopes for an agreement.
In addition to senior government officials, Luis Caputo, Argentina’s finance secretary, traveled to Manhattan this week for the talks. It was not always apparent that a deal would emerge. To start, Mr. Macri promised to publicly announce a proposal for the hedge funds this week. But those holdouts had requested that Argentina sign a nondisclosure agreement to not to reveal the details of the negotiations publicly.
Another sticking point for both sides has been just how much interest Argentina would be willing to pay to the hedge funds.
Earlier this year, Argentina’s economic minister, Alfonso Prat-Gay, foreshadowed potential friction between the two parties. Speaking at a news conference with reporters in Buenos Aires, he estimated that the debt owed to holdout bondholders — including NML Capital and the Italian bondholders — totaled $20 billion, adding that 60 percent of that amount fell under New York jurisdiction.
For holdout creditors who want Argentina to pay significantly more in interest than on the original amount of the debt owed, Mr. Prat-Gay said, “You’d perhaps have to go before Christ to get a such a big return.”
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