Argentina Asks U.S. Judge to Drop Block on its Debt Payments

  • Nation settled with two big holdout creditors this month
  • New president seeks end to debt market pariah status

Argentina’s new administration wasted little time trying to end U.S. court orders barring the country from paying holders of its restructured debt, as it seeks to set aside its status as a credit-market pariah after 15 years.

Representatives of newly seated President Mauricio Macri, after reaching a settlement with some holdout creditors, is urging U.S. District Judge Thomas Griesa to drop orders barring it from paying holders of its new debt before it pays on bonds Argentina repudiated in 2001. 

Argentina announced Feb. 5 that it had agreements to resolve claims by Dart Management Inc. and Montreux Partners. Daniel Pollack, a court-appointed mediator, said in a statement Friday that the agreements with Dart and Montreaux settled more than $1 billion in claims.

Those settlements followed overtures by Macri’s administration of a policy change from that of his predecessor, Cristina Fernandez de Kirchner, who called the holdouts “vultures” and vowed never to pay them. Under Fernandez de Kirchner’s leadership, Argentina defaulted on the restructured debt in 2014 rather than pay the holdouts.

Now Argentina contends that Griesa’s orders are no longer justified as it tries to moves to settle claims.

Argentina, represented by lawyers from the New York firm Cravath, Swaine & Moore LLP, told Griesa on Thursday it needs the orders to be dropped so it can borrow money to follow through with the settlements. Any move by Griesa to cancel the orders may drastically reduce the leverage of the remaining holdout creditors in settlement negotiations.

Argentina also made public its offer to pay $6.5 billion to settle $9 billion in claims by Paul Singer’s Elliott Management, Aurelius Capital Management and two other hedge funds. The funds have rejected that offer.

“Intensive discussions between and among high-ranking Argentine government officials, principals of those four firms and me have continued through the week,” Pollack said in the statement. “These discussions have gone late into the night and will continue.”

Pollack said additional holdout creditors with “substantial” holdings have “expressed interest in settling, and are in the process of attempting to reach agreements in principle with Argentina.”

Court Deadline

Griesa ordered the holdouts to file papers responding to Argentina’s request by Feb. 16. An Elliott spokesman declined to comment on Thursday’s filing by Argentina.

Aurelius Chairman Mark Brodsky said Argentina is pursuing “a baffling continuation of the failed strategy of the past.”

“Given the choice between accepting the substantial haircut we have offered, continuing negotiations, and litigating, Argentina chose to litigate,” he said in a statement.

The country proposes to pay 70 percent of “substantially reduced” claims -- “a double haircut,” Brodskysaid.

Argentina’s dollar bonds due in 2033 rebounded Friday to gain 1.4 cents to 116.35 cents on the dollar at 1:25 p.m. in New York. The notes hit a high of 116.48 cents on Feb. 5, the day Argentina released its settlement proposal.

Argentina’s Proposal

In its court filing, Argentina proposed that Griesa drop the court orders if its Congress agrees to repeal two laws blocking payment of the defaulted debt and makes payment to any holdout bondholders that settle by Feb. 29. If those conditions are met, Argentina argued, Griesa’s orders will no longer be justified.

Argentina defaulted on a record $95 billion of sovereign debt in 2001. It settled most bondholder claims in debt restructurings in 2005 and 2010. A group of holdouts, including hedge funds that bought the defaulted bonds on the secondary market, rejected the restructuring and sued to collect the full amount they were owed. 

The holdouts consistently won judgments from Griesa, the U.S. judge overseeing litigation over the 2001 default. The difficulty lay in trying to collect from Argentina, whose assets outside the country were largely immune from seizure.

2012 Shift

The situation changed when Griesa in 2012 agreed with the holdouts that a clause in the original bond contracts, requiring bondholders to be treated equally with holders of later-issued debt, meant that Argentina couldn’t pay what it owed the restructured-bond holders without also paying a group that held defaulted bonds. The rulings turned up the pressure on Argentina to settle.

Argentina this week announced it had hired Cravath to represent it after considering eight law firms. 

The case is NML Capital v. Republic of Argentina, 08-cv-06978, U.S. District Court, Southern District of New York (Manhattan).

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