As the talks near, the government is looking for a new law firm to represent the country in the negotiations. The current lawyers at Cleary, Gottlieb, Steen & Hamilton will have to work alongside another firm as Finance Minister Alfonso Prat-Gay has said the country’s lawyers are at least in part to blame for failing to reach a deal. Several candidates are on the list of potential law firms, such as Shearman & Sterling and Watchel-Lipton.

Saturday, January 9, 2016

Gov’t to meet with ‘vultures’ on Wednesday

Finance Secretary Luis Caputo will sit down with court-appointed mediator, holdouts

Argentina expects to resume long-awaited debt talks in New York next Wednesday with United States hedge funds suing the country over defaulted sovereign bonds, a Finance Ministry source said yesterday.

Finance Secretary Luis Caputo will travel to New York and meet with court-appointed mediator Daniel Pollack and representatives from the so-called “vulture” funds. The official said Caputo’s travel plans had not yet been finalized but confirmed the trip.

The talks would mark a major breakthrough in the dispute, which has kept Argentina largely shut out of international capital markets. President Mauricio Macri’s administraiton has long said that settling the debt issue with the holdout bondholders would be a priority for his administration as it is the key to boosting economic growth.

Caputo 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.

“In the long-term, the prospects of a resolution are quite good. But it’s going to take some time for a deal to be signed,” Law Professor at the University of North Carolina (UNC) and sovereign debt expert Mark Weidemaier told the Herald. “Writing a rough sketch of the deal would be an acceptable goal for this round of talks.”

The government will probably try to come to an agreement on a hair cut to lower the bill with holdouts that is currently of 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 adds up to the US$1.33 billion, plus interest, granted initially to NML and Aurelius, the main “vulture” funds behind the litigation against Argentina.

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 — the one issued after the default — 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 than the approximately nine percent achieved during the last debt issuance.

“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,” Weidemaier said. “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.”

As the talks near, the government is looking for a new law firm to represent the country in the negotiations. The current lawyers at Cleary, Gottlieb, Steen & Hamilton will have to work alongside another firm as Finance Minister Alfonso Prat-Gay has said the country’s lawyers are at least in part to blame for failing to reach a deal. Several candidates are on the list of potential law firms, such as Shearman & Sterling and Watchel-Lipton.

“Cleary was part of the reason of the failure of the negotiations. We want to solve the issue as soon as possible, there are investors from Europe also waiting for a solution” Prat-Gay said at a recent press conference.

A long-term conflict

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 that Argentina destined for its restructured creditors, ending in a legal limbo. The country then passed legislation that allowed it to remove the 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.

Herald with Reuters