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February 11th, 2016
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Is Paul Singer Preventing an Argentine Settlement with Hedge Funds?

Is Paul Singer Preventing an Argentine Settlement with Hedge Funds?

Taking concrete measures to end a protracted legal battle, Argentina made a formal debt payment offer to its creditors in the United States who hold its defaulted bonds. The latest installment on this 14 year long story was released last Friday, as Argentina sought to bring its financial pariah status to a conclusion.

Following five days of intense negotiations in New York between Argentine Finance Secretary Luis Caputo and Elliott Management (who leads New York hedge funds and other creditors who filed close to $10 billion in claims against the South American country), the offer that asks creditors to take a smaller settlement than expected.

In a statement released to the media, the Argentine ministry of finance said that financial proposal was tantamount to a 25% reduction. They added that if bondholders should accept it, there would be a payment of approximately $6.5 billion.

Daniel A. Pollack, a court-appointed arbiter, has said in a statement that the hedge funds involved in the talks had displayed their reluctance to immerse themselves in the debt restructuring that took place in Argentina in the aftermath of its 2001 default.

Bondholders were given two chances to exchange the defaulted bonds for new, cheaper ones over the years, but opted out.

At this juncture, the companies that have accepted the proposal from Argentina are Montreux Partners and Dart Management who represent two of the hedge funds. In order to free themselves from the shackles that have locked them out of the international trade market and the world of foreign investments, Argentina needs the agreement of all six hedge funds involved in the repayment plan.

Things could get sticky for the fledgling country as NML Capital, a hedge fund owned by billionaire Paul Singer, has refused to accept the Argentine proposal. In the past, the well-trained lawyer, Singer, had won suits forcing the governments of Peru and the Republic of the Congo to pay their bonds.

In July of 2014, the Jewish Voice reported that in 2005 and 2010, other creditors had agreed to give Argentina a break by trading their bonds for new ones of lesser value. It helped Argentina’s government cut down its debt, when about 93 percent of the defaulted bonds were traded in.

Part of the seven percent left over was the bonds acquired by Singer’s group. In New York, U.S. District Judge Thomas Griesa ordered the payment of holdouts in 2012. The combined principal and interest puts the current debt at $1.5 billion.

The case is being handled by U.S. courts, because there is no dedicated international court for sovereign countries to settle deals with creditors. Therefore, bond sales agreements usually stipulate that any legal proceedings occur in either New York or London, since they are the two largest financial capitals in the world.

On the surface, it appears that Argentina has the funds to pay all of its debts, with foreign reserves equal to nearly $29 billion. The problem is that those reserves are including IMF deposits, loans to other countries and other hard to access assets. In reality, on hand, Argentina actually has approximately $16 billion.

A larger group of hedge funds have not allowed Argentina to absolve itself of its debts and have attempted to garner the country’s assets throughout the world. As was reported in the New York Times, at one point in time, the hedge funds even attempted to seize an Argentine Navy ship that was docked in Ghana as collateral on the amassing debt. At other points throughout the years that have transpired since this crisis erupted, a standoff occurred and neither side would agree to speak with one another.

In his statement, Pollack praised Argentine President Mauricio Macri's "courage and flexibility" for helping to craft this proposal and for getting it on the table as a serious alternative.

According to published reports, Macri must have his country’s Congress ratify the deal. In the country’s political structure, there is no party that holds a lower house majority. A possibility remains that Macri may be in a position to bargain with dissident followers of the iconic Peron family as well as legislators who are allied together to defeat presidential candidate Sergio Massa.

“This litigation has gone on for nearly 15 years, since the original Argentine default of 2001, and the proposal by Argentina is a historic breakthrough, which, if the conditions mentioned above are met, will allow Argentina to return to the global financial markets to raise much needed capital,” Mr. Pollack said. He added that he hoped the other hedge funds and Argentina would be able to “resolve their differences” and also reach an agreement.

What helped pave the way to having two of the hedge funds accept the agreement was Argentina’s ability to strike a deal to pay $1.35 billion to Italian investors earlier this week. They, too, had held onto defaulted bonds.

The fact that Argentina has settled with these investors could apply pressure on NML Capital and other holdouts to resolve the dispute. Another sticking point for both sides has been just how much interest Argentina would be willing to pay to the hedge funds.

The NYT reported that at a news conference in Buenos Aires, Alfonso Prat-Gay, the country’s economic minister said that the estimated debt owed to NML Capital and the Italian bondholders — totaled $20 billion, adding that 60 percent of that amount fell under New York jurisdiction.

Harry Goldsmith

 

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