Thursday, February 25, 2016

Key holdouts close to US$5B deal

Court appointed mediator Daniel Pollack expressed anger at the disclosure yesterday, saying it “violated the confidentiality of the discussions.”

Elliott, Aurelius lawyer says ‘economic’ agreement reached as appeals court rules for Argentina

NEW YORK — The holdout creditors suing Argentina in US courts over defaulted bonds have agreed on the broad terms of a settlement to resolve the long-running litigation but need more time to complete the US$5-billion deal, a lawyer for the holdouts said yesterday.

Ending the litigation would be a historic step for Argentina, which has battled creditors who refused to accept the terms of earlier debt restructurings in 2005 and 2010. It would also give President Mauricio Macri the green light to re-enter international capital markets.

The disclosure about the agreement, later criticized as a violation of confidentiality by a court-appointed mediator, came during a hearing before a federal appeals court in New York. The appelate tribunal separately delivered a procedural victory to Argentina.

The appeals judges said they will allow District Judge Thomas Griesa to go ahead with lifting injunctions that have restricted it from making some of its debt payments and led some US credit agencies to declare the country is in technical default. Although the move was expected, it means the holdouts are now under pressure to come to an agreement before February 29, the cutoff date given by Argentina for hedge funds to accept a settlement offer.

Matthew McGill, a lawyer representing creditors Elliott Management’s NML Capital and Aurelius Capital Management in court, said there had been “an agreement on economic terms with Argentina since Thursday.” He also called the deal a “US$5 billion transaction.”

But McGill said his clients needed more time beyond a February 29 deadline for bondholders to agree to participate in the country’s offer to pay US$6.5 billion to resolve various lawsuits.

“If we have just a little time we can finish the deal,” McGill said.

Court-appointed mediator Daniel Pollack quickly chastised McGill, saying in a statement that the lawyer had spoken out of place and his words should not be read as any sign that a deal would be reached.

“That statement violated the confidentiality of the discussions between the parties, which is an inviolable principle of all negotiations,” Pollack said. “If and when there is a signed agreement in principle reached between those or any other parties, I will announce it.”

Mark Brodsky, the Aurelius chairman, declined to comment through a spokesman. Calls to Elliott Management were not immediately returned.

The Finance Ministry denied that any deal has been reached with the holdouts.

“The only person authorized to give news of an agreement is the mediator Pollack,” a spokesperson said.

The Argentine stock market and locally traded bonds cut some early-day losses but were largely unchanged after terms of an agreement were disclosed. Analysts said that dynamic was because investors had already factored in an eventual deal between the government and its holdout creditors.

Along with a slew of reforms enacted by President Mauricio Macri since his December inauguration, a comprehensive pact with holdout creditors could allow Argentina to issue debt in the global sovereign bond market and stop relying on Central Bank reserves to finance its budget.

It would also likely cheapen access to external funding for companies and provincial governments in need of better roads and other infrastructure used by farmers to transport soy, corn and wheat in the grains exporting powerhouse. Elected in November on a platform to usher in a new market-friendly era, Macri has lifted trade and currency controls, triggering a sharp devaluation of the peso.

‘VULTURES’ DEMAND TIME

McGill urged the Second US Circuit Court of Appeals to not dismiss various appeals by Argentina that, while pending, prevented Griesa from lifting the injunctions. Griesa had said on Friday he would lift the injunctions but said he lacked jurisdiction to do so while the appeals were pending.

While the appeals court said it would dismiss the appeals as Argentina requested, the judges said they would direct that any order by Griesa putting Friday’s decision into effect be put on hold for two weeks to allow bondholders to file an appeal.

Analysts have long said that the holdout funds are interested in dragging on the process as long as possible in order to twist Argentina’s arm in negotiations. While the biggest holdouts have battled Argentina in court for years, Macri’s administration has made no secret of its desire to close the legal battle in order to issue debt.

Michael Paskin, a lawyer for Argentina, said the country itself would like any appeal of Griesa’s order to occur as “quickly as possible” to provide certainty amid its settlement efforts.

“Without that, it makes the entire situation untenable,” he told the court.

Although the holdouts can appeal the order, analysts say it is extremely rare for an appeals court to overturn a district judge’s ruling when it comes to injunctions.

The proposed total US$6.5 billion settlement offer announced by Argentina on February 5 represents a 27.5 percent to 30 percent discount for creditors who filed claims of about US$9 billion.

The settlements are conditioned on the approval of the Argentine Congress and the lifting of injunctions in the litigation. Macri’s allies in Congress have expressed optimism in recent days, saying they will have the votes to approve the deals.

Earlier this week, Finance Minister Alfonso Prat-Gay said Argentina is planning to issue bonds worth US$15 billion to pay the holdout funds.

“One-third of the funds have already accepted our offer,” Prat-Gay said.

Herald with Reuters