Wednesday, February 3, 2016

Italian holdouts to get US$1.35B

Cabinet Chief Marcos Peña (left) looks on as Finance Minister Alfonso Prat-Gay speaks during a press conference at Government House yesterday.

First time Argentina seals deal with creditors who refused previous restructurings

Argentina agreed yesterday to pay US$1.35 billion in cash to a group of Italian investors who hold unpaid sovereign debt stemming from the 2001 default — the first time the country has reached an accord with “holdout” creditors who refused to participate in earlier restructurings.

The deal came hours before Finance Secretary Luis Caputo said a formal offer to all holdout creditors would be issued today or tomorrow, following an eight-hour meeting in New York that took place in the offices of court-appointed mediator Daniel Pollack.

Holdout claims total approximately US$9 billion, according to Pollack’s estimates released earlier this week.

“Our stakeholders should be glad considering what they were offered at the beginning,” Nicola Stock, president of Task Force Argentina (TFA) which groups together some 50,000 bondholders, said. “I expect the Italian holdouts to be paid between May and June.”

The deal was agreed last weekend in New York with Finance Secretary Luis Caputo — TFA said — but it was disclosed yesterday. Now it will be subject to the approval of the Congress as well as TFA board members, who were asking for US$2.5 billion. It represents a payment of 150 percent on the US$900 million principal value of the defaulted bonds.

“That means the entire nominal value plus 50 percent interest,” Stock said.

In a brief press release, the national government said Argentina “will resolve all claims for the full amount of the bonds plus three percent interest annually.”

Finance Minister Alfonso Prat-Gay earlier said the Italian investors’ holdings accounted for 30 percent of all the debt that is subject to legal claims in a US federal court and 15 percent of the defaulted debt that was not restructured in 2005 and 2010. Argentina defaulted on US$100 billion of debt in 2002.

“It’s a first step to normalize what matters most to us in this discussion, the interest calculation,” he said at a press conference. “Some creditors want to get an interest rate that it’s unacceptable under any criteria. That’s why the deal with the Italians is important. We are acknowledging them a third part of the original sentence.”

Argentina restructured about 92 percent of its debt in 2005 and 2010, imposing losses on creditors of about 70 percent. The Italian bondholders have litigated their case since 2006 in the World Bank’s International Centre for Settlement of Investment Disputes (ICSID).

Of the 180,000 Italians originally represented by TFA before the restructuring, about 70 percent have entered into the exchange agreements or died, according to Carolyn Lamm, an attorney who represents the bondholders at White & Case LLP.

Most of TFA’s members are between 60 and 80 years old and invested between US$25,000 and US$50,000 in Argentine debt, she told Bloomberg. The so-called retail investors last had a hearing at the ICSID in June 2014, according to Lamm.

The preliminary accord with some 50,000 Italian bondholders highlights the divergent views among the hedge funds and other “me-too” claimants who have joined the litigation about what an acceptable agreement looks like. It’s a boost for President Mauricio Macri as the government enters negotiations with the New York hedge funds pressing in the US courts for full payment.

Even so, it may not strengthen Argentina’s negotiating hand.

“Argentina still has no leverage in that they want the deal more than the bondholders,” said Siobhan Morden, head of Latin America fixed income strategy at Nomura. “Retail or individual investors would probably be more flexible than institutional investors and this is a considerable improvement over the 2010 restructuring offer.”

Argentina refused to heed US District Judge Thomas Griesa’s orders to pay the holdout hedge funds — often referred to as “vultures” — led by NML and Aurelius, at the same time as it pays bondholders who participated in the debt swap. That order came after the US Supreme Court declined to hear Argentina’s appeal of Griesa’s ruling and settlement talks went nowhere.

‘We want to get paid’

While celebrated by the government and TFA, Italian creditors who took part of the 2010 debt swap steeply questioned the agreement, claming that they haven’t been paid since 2014 so they should have come first.

Griesa blocked in 2014 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. Argentina then passed legislation that allowed it to remove the BoNY as its trustee and establish local payment mechanisms for its restructured creditors, leading Griesa to rule that the country was in contempt of court.

“About 95 percent of the Italian bondholders took part of the debt swap. They were paid regularly until 2014, when Griesa blocked the payment. Now they are all waiting to get paid, Argentina has to open a third debt swap,” Tullio Zembo, a legal representative for the Italian bondholders, told the Herald.

“This causes me a big headache as I don’t see a solution ahead,” he said.

Zembo has backed Argentina’s stand with the “vulture” funds in the past and questioned Griesa, describing his rulings as “injurious and unfair.”

meetings in New York

The government returned to debt talks on Monday, expecting to make an offer to US creditors suing over unpaid bonds in hopes of resolving a decade-long stand-off that has locked the country out of global capital markets.

The country was set to make its initial offer last week, but holdout bondholders asked for an additional week due to logistical problems.

The amount of money in play totals roughly US$10 billion, according to the government estimates, which is reportedly looking for a debt haircut but is facing steep opposition from the main “vulture” funds, including Paul Singer’s Elliott Management.

Herald with Reuters, online media