Saturday, February 6, 2016
Gov’t offers US$6.5B deal to ‘vultures’
Finance Secretary Luis Caputo speaks to the press after meetings at the office of a court-appointed mediator Daniel Pollack.
Two funds accept the proposal but major holdouts Singer’s NML, Aurelius remain elusive
Following a week of closed-door negotiations in New York, the 10-year legal conflict between the Argentine state and the “vulture” funds seems to be about to end as the national government made yesterday its first official offer, and it was accepted by two holdout creditors.
Of the approximately US$9 billion in claims, the Mauricio Macri administration asked the creditors for an average 25 percent debt hair- cut, vowing to pay them US$6.5 billion in cash by issuing bonds at an average six percent interest rate — a payment that would reach US$7.8 due to the US$1.35 agreed with Italian creditors earlier this week.
Nevertheless, due to the bond issuance, the deal with the holdouts would finally cost Argentina about US$13 billion.
The offer has already been accepted by EM and Montreux — which had US$773 million in claims — and many of the “me-too” bondholders but not by the largest and more conflict creditors, Elliot Management and Aurelius Management.
Thanks to the deal, the “vulture” funds, which purchased the defaulted bonds at their marginal value, would get a 1.100 percent profit, lower than the 1.300 acknowledged by United States District Judge Thomas Griesa. It’s a much better deal than the one offered by the Cristina Fernández de Kirchner administration, which was only willing to pay them the same as the creditors who had accepted the 2005 and 2010 debt swaps.
The offer will still have to be accepted by the Argentine Congress due to the padlock law — which prevents the country from providing the holdouts with better terms than those the nation offered in the restructurations. In that respect, Macri may be able to bargain with dissident Peronists and the caucus led by defeated presidential candidate Sergio Massa.
At the same time, 85-year-old Griesa will also have to accept the offer by lifting the injunction issued against Argentina, banning the country from paying restructured creditors without settling with the holdouts. The government hopes he accepts the deal despite Aurelius and Elliott’s rejection.
“Argentina proposes a restructuring to all the bond-holders who didn’t participate in the debt swaps carried out in 2005 and 2010. When the conditions are met, Argentina will carry out a formal debt restructuring proposal based on the terms of the current offer,” the Finance Ministry said on a press release.
Since Wednesday, Finance Secretary Luis Caputo held meetings with representatives from the holdouts and with court-appointed mediator Daniel Pollack. Negotiations were “intense” but “civil” and “enormous progress” was made, Pollack said, who spoke by telephone with Macri and Finance Minister Alfonso Prat-Gay.
“The proposal by Argentina is a historic breakthrough which, if the conditions are met, will allow Argentina to return to the global capital markets to raise much-needed capital,” Pollack said. “Macri and Prat-Gay stand solidly behind this proposal. Both have shown courage and flexibility with this long-festering problem which was not of their making.”
The dispute in US courts is one of the longest in sovereign bond restructuring history, stemming from Argentina’s default on US$82 billion in 2002. Resolving the feud would enable the country to emerge from default and return to global credit markets, a goal promised by Macri as a presidential candidate.
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 paid 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.
Former president Cristina Fernández de Kirchner wasn’t willing to pay the holdouts more than what was given to the creditors who entered into the 2005 and 2010 debt swaps. Negotiations were basically on hold until December 31, 2014 when the Rights Upon Future Offers (RUFO) clause expired. That clause prohibited Argentina from offering a better deal to those who rejected the 2005 and 2010 restructuring of defaulted debt
The end of the clause was followed by a set of meetings with former Economy minister Axel Kicillof in New York, but he failed to reach an agreement. Kicillof claimed that paying the “vultures” what they wanted would have had a severe economic effect. CFK’s Economy minister warned Macri this week over the consequences of the deal.
“It wouldn’t be crazy that another judge forces Argentina to pay the creditors who entered into the 2005 and 2010 debt swap the same as the ‘vulture’ funds. That would make the debt unaffordable again,” he wrote on his Twitter account.
Two kinds of offers
The national government issued yesterday two kind of offers, one for the creditors with a firm ruling and another one for the holdouts without one.
Creditors who don’t have a ruling in their favour and didn’t file claims at Griesa’s court were offered the so-called “base proposal” through which they would get the entire nominal value of their bonds plus 50 percent interest.
That was in fact the same deal reached with a group of 50,000 Italian creditors on Tuesday, who will receive a US$1.35 billion payment in cash. They accounted for 30 percent of all the debt that is subject to legal claims in Griesa’s court and 15 percent of the defaulted debt that was not restructured in 2005 and 2010.
On the other hand, holdouts who filed claims at Griesa’s court could choose either the base offer or the “pari-passu” offer, which sets different terms according to type of creditor.
Those with a firm ruling would get the entire nominal value but with a 30 percent debt haircut. That’s for example the case of NML, Aurelius and Blue Angel, among others. They now have a US$1.3 billion firm ruling from Griesa, which totals US$1.8 billion with interest. If they accept, they would get US$1.26 billion instead.
Meanwhile, those who filed claims at Griesa’s court but don’t have a firm ruling yet could also get the entire nominal value but with a 30 percent debt haircut. That’s the case of the so-called “me-too” bondholders, a group of creditors who did not accept the terms of the 2005 and 2010 restructuring not covered by Griesa’s initial ruling.
“In both the base and the pari passu offer, the government contemplates a payment in cash with funds obtained through the issuance of new bonds to be placed on the capital market,” the Finance Ministry said on a press release. “Creditors that take part in the proposal will have to resign all their rights, debts and legal actions related to their bonds.