Argentina-Singer Debt Talks Get a Reboot, But Obstacles Abound

  • Officials and creditors hold talks for first time in 18 months
  • Macri is seeking to resolve decade-long legal battle

Eighteen months after Argentina broke off talks with its disgruntled creditors, newly elected President Mauricio Macri is restarting the negotiations, fueling optimism the nation can finally put the decade-long legal battle behind it. But reaching a settlement won’t be easy. 

Macri, who took office Dec. 10, said Tuesday he wants court-appointed mediator Daniel Pollack to help facilitate a “reasonable deal” with bondholders led by billionaire hedge fund owner Paul Singer. Finance Secretary Luis Caputo met with Pollack and representatives of the creditors in New York on Wednesday to restart talks that ended in July 2014, when then-President Cristina Fernandez de Kirchner refused to abide by a U.S. court ruling that Argentina pay the investors in full. Her decision pushed Argentina into default for the second time in 13 years.

To reach an accord that paves the way for cash-strapped Argentina to regain access to overseas debt markets, Macri will have to overcome some formidable financial and political challenges. Among the biggest sticking points will be how Argentina, whose reserves touched a 9-year low in November, repays creditors left over from its record default in 2001, said Henry Weisburg, an attorney at Shearman & Sterling LLP. Some of the holdouts, who spurned restructurings in 2005 and 2010 that imposed losses of 70 percent, have said they would accept new debt instead of cash as part of a deal.

“There’s a long list of issues: the amount of principal, the treatment of interest, the particular bonds or instruments that are covered," Weisburg said.

While Singer has publicly said he would accept payment in bonds and a discount, paying a portion in cash may allow the government to impose greater reductions on the holdouts, he said.

Argentina owes the holdouts $9.8 billion, Argentine Finance Minister Alfonso Prat-Gay said Wednesday at a press conference in Buenos Aires.

Shearman & Sterling LLP is among the law firms Argentina is considering adding to conduct negotiations with holders of defaulted bonds, Finance Ministry spokeswoman Yael Bialostozky said on Dec. 29. Argentina will begin the selection process for an additional law firm to lead talks in the next few days, according to a ministry statement.

Bialostozky didn’t immediately reply to calls and e-mails seeking comment on the negotiations.

“It’s very important that we resolve the problems of the past,” Macri said in a press conference in Buenos Aires on Tuesday. “We want to stop being a country that’s branded as not honoring its pledges and we want to resolve all outstanding issues.”

Argentina’s $6.4 billion of bonds due in 2024 have gained 4.5 percent since Marci was elected Nov. 22, compared with an average loss of 2.4 percent in emerging markets tracked by JPMorgan Chase & Co. Argentina’s defaulted bonds due 2033 fell the most in a month to 113.5 cents on the dollar as of 1:39 p.m. in New York.  

Stephen Spruiell, a spokesman for Elliott Management, the New York-based hedge fund run by Singer, declined to comment on talks. 

Another potential stumbling block in negotiations will be how Argentina deals with its other creditors, said Marco Schnabl, a senior litigation partner at Skadden Arps Slate Meagher & Flom LLP.

In October, U.S. District Judge Thomas Griesa extended his ruling that Argentina repay Singer and other hedge funds $1.88 billion to holders of an additional $6.1 billion in defaulted debt.

To persuade Griesa to lift his ban prohibiting Argentina from paying other foreign debt until it pays Singer, Macri may need to reach an agreement with all of its creditors, Schnabl said.

“The great challenge lies in how to negotiate with those who may not be present at the table, how to offer the holdouts a settlement that is acceptable while also establishing a basis to settle with others who may add claims,” he said. “The next challenge is to figure out the mechanics to resolve with everyone else who might make claims. If you can’t resolve the issue with most of the creditors, it doesn’t bring you closer to the final objective, to access capital markets.”

Schnabl, who is based in New York, is an attorney for Argentine brokerage Puente, which filed a brief in support of Argentina’s Supreme Court appeal. Skadden is also among the candidates the government is considering adding to its legal team, according to Bialostozky’s statement.

Even if Macri is able to reach a settlement with Singer and the other remaining creditors, his job won’t be done. He still needs to convince Congress, which is controlled by the opposition, to repeal or change a law that bars Argentina from reopening the 2005 and 2010 restructurings.

That could be a tough sell in Congress if Macri loses popular support amid sluggish economic growth and surging inflation, said Siobhan Morden, the head of Latin America fixed-income strategy at Nomura Holdings Inc.

“He hasn’t yet cooperated with congress, so he’s untested on that front,” Morden said. "They have to frontload all the measures, including the holdout negotiations, before he loses political capital as stagflation worsens.”

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