Singer’s Gramercy Rebuff Blunts Talk of Bond Deal
Billionaire hedge fund manager Paul Singer has dismissed attempts by Argentine bondholders to orchestrate a deal that would end his legal claims against the country, calling the initiative pointless.
After a decade-long legal battle, Singer may be only months away from receiving full payment on the debt through U.S. courts, giving him no incentive to accept lesser terms in a settlement, according to Stuart Culverhouse, chief economist at Exotix. Singer’s disinterest in negotiating with owners of restructured debt led by Gramercy Funds Management LLC may halt a rally in the bonds as investors realize the legal claims against the country won’t be dropped, said Culverhouse.
Elliott officials “just want to maximize their return,” Michael Henderson, an economist at Capital Economics in London. “It’s been a decade already, so for an additional six or nine months, it’s probably well within their interest to stick with their timetable.”
Argentine dollar bonds have gained 0.9 percent since the first reports of the Gramercy-led talks to find an inter-creditor solution on Oct. 20, beating returns on emerging-market debt, which lost 1.9 percent, according to JPMorgan Chase & Co.’s EMBI Global Diversified index. The gains extended year-to-date returns to 17.8 percent, the best among developing countries after Belize.
Gramercy’s preliminary plan calls for most holders of restructured bonds to agree to cede part of their interest payments to investors with defaulted securities in exchange for the holdouts to drop their lawsuits, according to five bondholders approached by officials from the Greenwich, Connecticut-based firm.
In order to change the terms of the notes to earmark coupon payments to holdouts, Gramercy must garner approval from holders of 75 percent of each series of bonds, according to the bond prospectus.
Katrina Allen, a spokeswoman for Gramercy at ASC Advisors LLC, declined to comment on bondholder talks or Elliott’s statement. Norma Madeo, a spokeswoman at the Economy Ministry, declined to comment on whether Argentina is willing to negotiate with holdouts or are supporting an inter-creditor plan.
Elliott said Nov. 7 it’s only willing to negotiate with the Argentine government and has no interest in holding talks with fellow bondholders.
“We welcome the idea of good-faith negotiations with Argentina, but we don’t see the point of negotiating with other bondholders,” the New York-based fund said in an e-mail. “We have approached Argentina countless times about negotiating a resolution to this dispute. It is completely within Argentina’s power to solve this.”
Elliott money manager Jay Newman said in an Oct. 7 Financial Times editorial it’s time for Argentine President Cristina Fernandez de Kirchner’s government to “sit down and discuss a resolution” with its creditors.
Any out-of-court solution requires Argentina’s participation because it’s unlikely that Gramercy will gather the support required to make its plan work, said Diego Ferro, co-chief investment officer at Greylock, which owns Argentine exchange bonds.
“If Argentina doesn’t get involved no plan that’s originated by investors will work because they won’t pull together enough financing and participation,” he said in a telephone interview from Buenos Aires. “As soon as Argentina sits down to solve this, capital markets will open for them again.”
Argentina hasn’t tapped international credit markets since its 2001 default on $95 billion, as it’s unwilling to pay the additional 8.14 percentage points over U.S. Treasuries that investors demand to hold the country’s dollar bonds.
Argentina offered about 30 cents on the dollar for its defaulted debt in 2005 and 2010 debt swaps, which 93 percent of creditors accepted. Fernandez has vowed never to pay the remaining 7 percent of creditors she calls “vultures” more than what was offered in the restructurings.
“It shouldn’t matter where the money comes from but another part of this is they’ve been pursuing Argentina for 10 years,” said Culverhouse at Exotix in a telephone interview from London. “Money is one thing but there’s also being proved to be right. I think things got personal a long time ago.”
Elliott has tried to seize Argentine central bank funds deposited in New York and successfully grabbed a Navy ship during a stop in Ghana for two months until it was freed in an international tribunal of the sea.
Argentina may negotiate with holdouts after a clause in the exchange bond prospectus that prevents the country from offering holders of defaulted bonds better terms than those of its previous restructurings expires in December 2014, according to ACM Consultores.
“Argentina will have more flexibility after December next year to sit down and negotiate with holdouts,” Maximiliano Castillo, a former central bank manager who runs ACM, said in a telephone interview in Buenos Aires. “If the ruling hasn’t been executed by then, it may have a window of opportunity to reach a solution outside of court.”
Argentina is trying to avoid a second default in 12 years as the court’s decision prevents third parties, including trustee Bank of New York Mellon Corp., from passing payments to bondholders unless the nation also pays holdouts. At 1,788 basis points, the nation’s debt is the most expensive in the world to protect against non-payment over five years with credit-default swaps, according to data compiled by CMA Ltd.
While a New York court on Aug. 23 rejected Argentina’s appeal, it delayed the effect of the orders until the Supreme Court decides whether or not to take the case. Bonds have rallied since then on speculation legal delays will extend into 2014.
“The only thing working in Argentina’s favor is that they’ve managed to lodge appeals to kick the process to 2014,” Henderson said. “From Elliott’s point of view, they’re in a strong position. It may take some time for them to realize payment but as it stands there’s probably no reason for them to want to negotiate with any other bondholders.”
To contact the reporter on this story: Camila Russo in Buenos Aires at firstname.lastname@example.org