Argentina Euro Accord May Bring It Closer to Injunction Removal

  • Government seeks lifting of injunction to pay creditors
  • Exact size of latest settlement hasn't been disclosed

Argentina’s accord to settle a lawsuit from holders of defaulted euro-denominated bonds is bringing the country a step closer to resolving disputes that have left it locked out of overseas capital markets.

The deal shows Argentina is working to find amicable solutions for creditors from its 2001 default who held out during previous restructurings, which may help persuade a U.S. judge hearing one of the cases to lift an injunction blocking the country from repaying foreign debt, according to Marco Schnabl, a senior litigation partner at Skadden Arps Slate Meagher & Flom LLP. The settlement announced Tuesday in the so-called Brecher class-action case follows deals with two U.S. hedge funds and a group of Italian bondholders.

“It’s good news for Argentina,” said Schnabl, who has represented Buenos Aires-based brokerage Puente, which filed a brief in support of Argentina’s position when it sought to appeal the district court’s judgment at the Supreme Court in 2014. “It’s one more argument that Argentina will probably use to indicate a change in circumstances that may justify the lifting of the stay.”

Argentina has asked U.S. District Judge Thomas Griesa to drop orders that bar it from repaying foreign debt until it reaches a settlement with some of its disgruntled creditors, saying it needs the injunction removed so it can follow through with the agreements it has reached. While the Brecher class-action suit wasn’t part of the so-called pari passu case being heard by Griesa, the deal shows Argentina’s willingness to resolve the debt disputes, Schnabl said.

No amount was given for the settlement announced Tuesday, which stems from a lawsuit filed in 2006 that sought payment at the time on 453 million euros of outstanding bonds. It’s subject to approval from Argentine lawmakers.

Negotiations with the remaining hold-out creditors are continuing, according to a Finance Ministry official. Griesa’s orders, which went into effect in 2014, bar Argentina from paying restructured bondholders unless it also pays hold-out creditors. Argentina currently owes about $3.8 billion in past due interest to exchange bondholders, according to Nomura Securities International.

"Argentina is aware that negotiating with the larger hold-out creditors which have been awarded the pari passu injunction continues to be the priority, but the hold-out problem won’t go away unless you solve it in its entirety,” said Alejo Czerwonko, a New York-based emerging markets strategist at UBS Wealth Management. "For Argentina to return to international capital markets, they need to put the whole issue to rest. And the issue has multiple fronts."

Argentina reached an agreement to resolve claims with Dart Management and Montreux Partners Feb. 5, while four hedge funds including billionaire Paul Singer’s Elliott Management rejected the proposal. On Feb. 2, Argentina agreed to pay 50,000 Italian bondholders 54 percent of their $2.5 billion claim on defaulted debt in cash.

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