Saturday, February 13, 2016

Gov’t fails to convince top ‘vultures’

Mark Brodsky, Aurelius Management head, questioned Argentina’s offer yesterday.

Aurelius accuses President Macri of pursuing ‘failed strategy’ of previous administration

One of the two main creditors battling Argentina in a New York court over defaulted debt yesterday called the country’s decision to return to court in the dispute “baffling.”

The statement by Aurelius Capital, in which it said President Mauricio Macri was following the same “failed strategy” of the previous administration, marked the clearest sign that a week after the government made a US$6.5 billion offer to holdout funds, there is little sign of progress.

Although debts talks continued this week no agreement has been reached with the largest holdouts yet, court-appointed mediator Daniel Pollack said yesterday.

Even as Aurelius criticized the government’s decision to ask US District Judge Thomas Griesa to lift the injunction against the country, lawyers of the holdout fund Dart — which already accepted the government’s offer — sent a letter to Griesa supporting the government’s request for a stay in order for the country to process debt payments.

For Aurelius, Argentina is not really interested in negotiating.

“The choice between accepting the substantial haircut we have offered, continuing negotiations, and litigating, Argentina chose to litigate. This is a baffling continuation of the failed strategy of the past,” Aurelius head Mark Brodsky said in a brief statement.

Brodsky said only 14 percent of the New York claims against Argentina have accepted the government’s offer. Ever since the offer was made last week, Aurelius has been claiming that those who accepted the offer will get paid more than 100 percent of what they are owed while the largest recalcitrant bondholders are being asked to accept deeper discounts. The government has denied that claim.

President Mauricio Macri’s government proposed a US$6.5 billion payment last week to settle the legal battle stemming from its record US$100 billion default in 2001. Two out of six leading bondholders, Dart Management and Montreux Partners, accepted the offer put forth by Argentina, which represents a 27.5 to 30 percent discount for creditors.

“For most other claims, Argentina proposes to pay not even 70 percent of the claim, but 70 percent of a substantially reduced claim — a double haircut. Holders of less than five percent of the claims have accepted that haircut,” Brodsky said.

While Elliott hasn’t issued a public opinion about the government’s offer yet, this is the second time Aurelius openly questions the agreement sought by the Mauricio Macri administration. Brodsky said on Tuesday that Argentina had “bought” Dart’s support by offering to pay its full debt, claiming Aurelius would be “delighted” to accept that kind of generosity.

Aurelius, Elliott and the other bondholders who haven’t accepted the government’s offer have until Thursday to explain why Griesa shouldn’t grant Argentina a stay, according to an order issued by the judge following a request of Argentina’s new lawyers in New York at Cravath, Swaine & Moore.

Griesa issued an order in 2012 requiring Argentina to pay the holdouts US$1.33 billion plus interest when it serviced its restructured debt, a move that pushed the country into technical default again in July 2014.

“The injunctions, which were necessary to bring about a resolution, are now an obstacle to finalizing those deals and similar settlements with debt holders,” Argentina’s lawyers wrote, when they called on Griesa to decide on a stay.

The request was backed by Kenneth Dart’s lawyer Kenneth Jones yesterday, who said Argentina made “significant” efforts on its negotiations with the “vulture” funds.

“Argentina won’t be able to execute the agreement with EM unless the court grants relief in all the cases,” Jones said.

Nevertheless, such a decision is conditioned on the approval of Congress, where Macri lacks a majority, and the lifting of an injunction Griesa issued in 2012.

Talks to continue

Argentina’s sovereign debt settlement talks will continue despite a lack of resolution between the government and four remaining major holdout creditors, court-appointed mediator Daniel Pollack said in a statement yesterday.

“Claims by four other large ‘holdouts’ were not resolved this week, but intensive discussions between and among high-ranking Argentine government officials, principals of those four firms and me have continued through the week,” Pollack said.

“These discussions have gone late into the night and will continue,” he said, noting that two large creditors have settled their claims in principle for an aggregated amount, between them, of “well over US$1 billion.”

“I do not know whether agreements in principle will be reached with these four bondholders, but I will continue to do everything in my power to see that it happens,” he said.

Pollack said that other investors with “substantial holdings of defaulted Argentine bonds” have also come forward expressing interest in settling and are working to reach an agreement with the government.

Pollack’s optimism was shared yesterday by Foreign Minister Susana Malcorra, who said a deal with the holdouts is near.

“I’m optimistic, we’re close to finding a solution. We sat at the negotiating table with an offer that experts have described as reasonable,” she said. “Many of the holdouts want to continue collecting interests rather than finding a solution. They purchased debt at a very low price but they fight as if they had bought it at full price.”

Eric Le Compte, who heads the non-profit organization Jubilee USA Network, said Griesa is “pressuring” the holdouts to accept Argentina’s offer and said he was “surprised” by their rejection, considering the large profits they would receive

“These funds are poised to make a 1,000 percent profit after buying the debt for pennies on the dollar. It’s baffling why they wouldn’t accept such a deal,” he said. “Griesa is pushing them to accept the offer. They won and received massive benefits and now they should let Argentina return to the markets.”

Uncertain outcome

US credit rating agency Fitch Ratings also praised the government’s offer to the holdouts yesterday but warned that big uncertainties remained. It also left the door open to upgrade the country’s foreign currency rating if a deal is reached.

“Implementation of an agreement with creditors is key to lifting Argentina out of default, but the degree to which the new administration can ease financing constraints and strengthen the consistency and credibility of the policy framework will determine Argentina’s post-default rating,” the agency said.

Fitch’s forecast comes after Standard & Poor’s raised the the country’s long-term and short-term sovereign credit ratings in pesos by one notch but kept unchanged its selective default on the country’s foreign-currency debt. Moody’s had also raised Argentina’s outlook from “neutral” to “positive” after the elections.

A decision to upgrade the country’s foreign currency rating could come after a deal with the “vultures” Fitch said but the extent of the upgrade will depend on an assessment of the government’s progress in increasing financing sources as well as on the country’s solvency.

“Should Argentina exit default, policy and financing developments will continue to be important rating factors while the Macri government implements its economic plan,” Fitch said.

Herald with Reuters