Wednesday, January 13, 2016

Gov’t re-starts talks with ‘vulture’ funds

Finance Minister Alfonso Prat-Gay meets with Tucumán Governor Juan Manzur yesterday.

Macri says finance secretary will tell court-appointed mediator that Argentina wants to resolve issue

Argentina will tell the mediator brokering debt negotiations with holdout funds suing the country over unpaid debt that it wants to resolve the decade-long legal battle, President Mauricio Macri said yesterday.

Talks between Argentina, which was declared in default on some sovereign bonds, and United States hedge funds led by billionaire Paul Singer’s Elliott Management are set to resume today and expectations are high that it will be the launching pad to settle the long-term dispute.

“We don’t want to remain listed as a defaulter, we want to resolve all outstanding issues. Even though things haven’t been done well in the past, there’s now a change,” Macri told reporters. “We’ll tell the mediator that there has been a change on how we look at our debts in Argentina.”

Finance Secretary Luis Caputo will meet in New York with court-appointed mediator Daniel Pollack and representatives from the “vulture” funds alongside Lee Buchehit, a lawyer at Cleary, Gottlieb, Steen & Hamilton, the firm that will represent Argentina at the talks until the country appoints a new law firm.

The Finance Ministry confirmed yesterday the government will soon hire a new law firm for the holdouts case. Cleary will continue working for Argentina considering its accumulated experience on the case, a press release reads. Meetings will be held this week with the candidates and then there will be a selection process.

No official offer will be tendered today, government officials have said, claming it will amount to a preliminary conversation.

“We’ll ask Pollack to help us find a reasonable solution. We want to put an end to the issue, even though the country’s stance in the past wasn’t the most reasonable,” Macri said. “I hope we can quickly leave this issue in the past as it doesn’t allow us to grow. Afterward, there will be more possibilities for funding and growth.”

Caputo has already travelled twice to New York since Macri’s presidential victory on November 22 to meet with Pollack and discuss the upcoming negotiations. The court-appointed mediator described the meetings as “constructive,” and said “substantive negotiations” between the holdouts and the government would begin in early January.

The government is likely to centre its efforts on getting holdouts to agree on taking a cut in the face value of the bonds in order to lower the bill that is currently at around US$8 billion, a figure reached in October after United States District Judge Thomas Griesa agreed that holders of US$6.1 billion of defaulted bonds must also receive payment when the country services restructured debt.

The figure is in addition to the US$1.33 billion, plus interest, granted initially to NML and Aurelius, the main “vulture” funds behind the litigation against Argentina.

“At this stage, using the term negotiation isn’t actually correct. Both parties have a lot of catching up to do. It will be a success for the country if it gets a haircut on the debt,” Renewal Front economist Guillermo Nielsen said yesterday. “The holdouts have two strong arguments, a ruling in their favour and the fact that the issue reached the Supreme Court.”

At the same time, Macri’s envoy will likely say that as a condition for the talks to take place there must be a temporary stay on current court rulings to allow the country to pay its performing debt without the risk of any embargoes in the United States.

A stay from the US judge would also allow the government to issue debt under New York legislation and not face any attempts by the “vulture” funds to block or seize the debt payments. Issuing debt under New York legislation would allow the country to pay a much lower interest rate on credit.

“A stay would be a very desirable thing for the government but not for Griesa. He needs some indication from the plaintiffs and the special master that a deal is within reach in order to issue a stay and that’s not going to happen in the short-term,” sovereign debt expert Mark Weidemaier recently told the Herald. “A stay is the only source of leverage the judge has. He is not going to grant one if he doesn’t think a deal is close.”

A long-term dispute

Argentina refused in 2014 to heed Griesa’s orders to pay the holdout hedge funds, led by NML and Aurelius, at the same time as it pays bondholders who participated in the debt swaps following the country’s 2001 default. That order came after the US Supreme Court declined to hear Argentina’s appeal of Griesa’s ruling and settlement talks went nowhere.

The judge subsequently blocked Bank of New York Mellon Corp (BoNY) from processing a US$539 million payment from Argentina destined to its restructured creditors, an action that placed repayments in a legal limbo. The country then passed legislation that allowed it to remove BoNY as its trustee and establish local payment mechanisms for its restructured creditors for Par bond payments, leading Griesa to rule that the country was in contempt of court.

New debt, open conflict

The Finance secretary might also use the trip to try to reach a final agreement with international banks headquartered in the US, with whom the country is in advanced negotiations to loan cash to Argentina’s Central Bank in order to reinforce its foreign currency reserves.

Banks have offered slightly improved interest rates to Caputo compared to what Argentina was offered last year, banking on an agreement with the holdouts and other economic reforms at home which they favour, but the deal is not closed yet.

Holdouts led by Elliott Management and Aurelius Capital Management served HSBC with a subpoena for documents on the bank’s involvement in Argentina’s plan to get cash. They want to find out whether the loan would violate United States District Judge Thomas Griesa’s order limiting the country’s capacity to raise money offshore.

Herald with Reuters, Télam