Wednesday, April 20, 2016

Holdouts to be paid US$9.3B as early as Friday

Figure could rise to US$11 billion should all creditors reach a settlement

The hedge funds that waged a 15-year battle to force Argentina to make a bigger payout on its defaulted bonds will get first dibs on the proceeds from Argentina’s new bond sale between Friday and Monday.

According to Finance Minister Alfonso Prat-Gay, US$9.3 billion of money raised yesterday will be used to pay the settlements signed by President Mauricio Macri’s administration in two days time.

That sum could rise by a couple of billion it emerged, however, after Prat-Gay admitted yesterday that some holdouts (a small minority in New York and others in countries such as Germany and Japan) have yet to reach an agreement with the country.

In an arrangement both unusual and unusually complicated, the sovereign will pay the initial US$9.3 billion to its litigant creditors first when it receives the cash from its new bond.

Satisfying that obligation will pave the way for the remainder of the proceeds from the bond to be used at home, according to an offering memorandum seen by Reuters.

The remaining US$6 billion will be partly reserved for the remaining settlements and partly used to finance the needs of the Treasury, the government says.

In all Argentina currently owes roughly U$11bn to all holders of its defaulted bonds, including what it has agreed to pay litigant creditors so far.

It has reached a deal on about 90 percent of the bonds involved in the US court suit, US mediator Daniel Pollack said, and it is yet to cut a deal with some holdouts.

Injunction over

With the money it raised yesterday, the country all but secured that the injunction freezing its normal debt payments to restructured bondholders will be lifted in the coming weeks.

New York District Judge Thomas Griesa said he would put an end to the injunctions if the country complied with two conditions: repealing two Congressional laws designed by the previous administration in an attempt to circumvent Griesa’s restrictions and paying the holdouts with which it reached a settlement before February 29.

According to the offering memorandum for Argentina’s new bonds, the injunction will have to be lifted — and the holdouts paid — before the remaining portion of the cash raised can be used for settlements in phase two.

In order for the two-phase process to take place, each series of the new bonds will carry two distinct CUSIP and ISIN identifying codes.

Once both phases have closed, the second set of identifying codes will be cancelled and the two sets of bonds of each series will be merged. That technicality ensures that the agreement is followed to the letter.

Restructured bondholders

Around US$3 billion that should have been paid to holders of Argentina’s restructured debt have also been in limbo since June 2014, after Griesa’s ruling blocked those transfers in an attempt to force the country into paying the unrestructured holdouts.

Argentina deposited US$538 million at the Bank of New York Mellon (BONY) back in June 2014, but Griesa warned the bank not to wire the money to the creditors if it didn’t want to face sanctions.

After those payments could not be materialized, Cristina Fernández de Kirchner’s government passed the Sovereign Payment law through Congress which called for the opening of a new account at the Banco Nación Fideicomiso in order to pay restructured debt holders in Buenos Aires, outside of Griesa’s jurisdiction.

Although Argentina deposited around US$2.5 billion at the Nación Fideicomiso, restructured debt holders did not accept the government’s proposal to be paid within the country.

Now that the Sovereign Payment law has been repealed and the injunction against the country has been lifted, those payments are likely to be completed through BONY again.

The date for their payment is still unconfirmed.

Herald staff with Reuters