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Matt Levine

Yesterday Was Not Argentina's Day

Axel Kicillof provided a magnificent lesson in how to troll bondholders yesterday. So that's something?  It's not much.

In 2001, Argentina defaulted on its debt. In 2005 and 2010, it offered holders of the defaulted bonds a choice: They could exchange into new bonds, at around 30 cents on the dollar, or they could just not do that and get nothing. Given this choice, most bondholders took the exchange. A few hardy or angry or lazy holdouts did not. They, or their successors in interest, decided to fight to get their money back. They sued and sued and sued some more, arguing that Argentina couldn't pay its new exchange bonds without first paying back the holdouts on their old bonds. Argentina was having none of it: You should have taken the exchange offer, it said. But the holdouts persuaded Thomas Griesa, a federal judge in New York, to issue an injunction to that effect. Then they won on appeal. Then they won again in front of the Supreme Court.

Argentina had a payment due on the exchange bonds yesterday, or really a month ago but let's say yesterday. Griesa's injunction prevented Argentina from making that payment. To make the payment and avoid default, Argentina needed to come to a deal with the holdouts, so they'd agree to lift the injunction. So, after a decade of rancorous litigation, in which Argentina steadfastly insisted that the holdouts could not get a better deal than the exchange bondholders, it finally got serious about reaching a settlement. Its banking association came up with a clever plan to buy the holdouts' bonds, which would avoid certain technical problems with a settlement directly between the holdouts and Argentina. And Argentina's minister of the economy, Axel Kicillof, flew to New York to meet with a court-appointed mediator and the holdout funds.