Tuesday, February 23, 2016

Gov’t to issue debt to pay ‘vultures’

Finance Minister Alfonso Prat-Gay says relations with Judge Thomas Griesa have improved.

Seeks to end appeal against judge’s previous rulings as holdouts appear divided

Argentina is planning to issue bonds worth US$15 billion to pay off its debt to the holdout funds, Finance Minister Alfonso Prat-Gay announced yesterday.

“One-third of the funds have already accepted our offer,” Prat-Gay told AFP, following confirmation from court-appointed Special Master Daniel Pollack that five new holdouts had accepted the country’s settlement proposal.

The latest bondholders to accept the offer had debt worth US$250 million and 185 million euros.

“These bondholders include Lightwater Corp, Old Castle Holdings, VR Capital, Procella Holdings and Capital Ventures International,” Pollack wrote.

According to Prat-Gay, New York District Judge Griesa has “taken note” of Argentina’s move and there’s reason to be optimistic.

Argentina and Griesa’s positions are getting closer than ever, with President Mauricio Macri’s administration also responding to Friday’s favourable ruling by dropping appeals against previous Griesa decisions, while also assuring it has the necessary votes to repeal the Padlock and Sovereign Payment laws as the magistrate demanded.

Appeal dropped

The country yesterday moved to end its challenge against a Griesa ruling that blocked Citigroup last year from processing interest payments to holders of US$2.3 billion in bonds issued under Argentine laws.

A federal appeals court in New York had been set to hear the case tomorrow. But in court papers lawyers said recently Macri’s administration had decided not to pursue the appeal.

The motion came after Griesa signaled his willingness to lift injunctions placed on debt payments owed to creditors who participated in past restructurings after the country’s nearly US$100 billion default in 2001. Those injunctions had prevented the country from normally servicing its restructured debt.

Argentina earlier this month proposed paying US$6.5 billion to resolve litigation with creditors that did not participate in the 2005 and 2010 restructurings and had been suing for payment on defaulted bonds. The offer was a significant improvement when compared to those of the past administration, which had insisted that it could not offer the holdout funds, which it often described as “vultures,” more than what it was paying restructured bondholders.

Local laws

Griesa’s ruling on Friday said that, for him to lift the injunction against the country, Argentina would first have to comply with two conditions.

The first was to pay all the holdout bondholders who accept Argentina’s new and improved offer before February 29. The second is repealing the laws passed in the country’s Congress to try to bypass Griesa’s decisions or the holdouts’ demands.

According to key lawmakers and analysts, Congress is likely to repeal the two key laws blocking the deal, the Sovereign Payment law which allows bond payments to be processed in Buenos Aires rather than New York and the Padlock law which bans the government from offering better terms than those included in the previous debt restructurings.

“I think we are going to have the numbers we need (to repeal the laws),” Nicolas Massot, the head of Macri’s PRO party in the lower house, said during a radio interview yesterday.

According to the state-run Télam news agency, Massot even argued that the Victory Front caucus led by Héctor Recalde in the Lower House would consider voting to repeal those laws if the conditions looked good to them. Recalde, however, has said in the past that the terms offered by Argentina seem to be favourable to the so-called “vulture” funds, although other Peronist lawmakers are more likely to vote with the PRO party.

Analysts agreed Macri can probably corral the votes needed to repeal both laws in the Lower House of Congress by appealing to provincial Peronist figures, leaderless since Macri took office on December 10.

Provincial governors are expected to lobby the Senate to repeal the two laws in order to improve the country’s finances and free up money needed for roads and other local projects.

“Factional struggles within Peronism and the provinces’ critical financial situation should help Macri to get both laws repealed by Congress,” said Ignacio Labaqui, who analyzes Argentina for New York consultancy Medley Global Advisors.

Congress is meanwhile set to reconvene March 1, with settlement of the bond case topping the president’s legislative agenda.

Jimena Blanco, an analyst with Verisk Maplecroft in the UK, agreed that Macri should be able to cobble together the votes needed to clinch the repeals demanded by Griesa.

“Settling with the holdouts is the only way the government can continue applying a gradual economic adjustment,” Blanco added. “Without external financing, the only option would be a shock treatment. Macri will try to avoid this by all means possible.”

A settlement would open financing options to Macri as he tries to straighten out the country’s fiscal deficit without imposing the kind of shock spending cuts that would undoubtedly raise the ire of unions.

Holdouts divided

The country has been shunned by the international capital markets since it defaulted in 2001. About 93 percent of creditors accepted around 30 cents on the dollar in the two bond revamps.

But a group of creditors went to court asking for full repayment, convincing the judge to prohibit Argentina from servicing its restructured bonds until they too were paid.

The funds have been in negotiations with Macri’s economic team in recent weeks in New York to resolve the years-long dispute. Griesa’s ruling on Friday robbed them of leverage in those talks.

In a letter to a federal appeals court filed on Saturday, Elliott Management’s NML Capital Ltd and Aurelius Capital Management, both major holdout funds, called Griesa’s ruling an “abrupt judicial ultimatum.”

“The message to non-settling plaintiffs, many of whom have had no opportunity to negotiate with anyone, is unmistakable: settle by February 29, or else,” their lawyers wrote.

Their position is a hardline one when compared with other funds such as Dart or EM Limited, which have accepted Macri’s improved offer.

Herald staff with Reuters, Télam