Argentina on Friday offered a US$6.5 billion cash payment to creditors suing the country over defaulted bonds, seeking to end a festering 14-year legal battle that transformed it into a financial markets pariah.
Two out of six leading bondholders have already accepted the offer, US court-appointed mediator Daniel Pollack said, hailing the proposal by Argentina’s new, business-friendly government as an “historic breakthrough.”
The offer, if accepted by all litigating bondholders, would represent about a 25 percent discount or so-called “haircut” for creditors who filed claims of about US$9 billion.
Photo: Reuters
The turning point in the legal fight stemming from Argentina’s record default on about US$100 billion in 2002 comes less than two months after Argentine President Mauricio Macri took office and expressed his commitment to a deal.
If Macri manages to clinch an agreement, the cash-strapped country would be able to emerge from default and return to global capital markets to finance badly-needed infrastructure such as new roads and railways.
Lower borrowing costs would also be a boon for corporate and regional finances in Latin America’s third-largest economy.
The Argentine Ministry of Finance said the offer entailed “a payment of approximately US$6.5 billion if all the bondholders accept it.”
It followed five days of intense talks in New York led by Argentine Finance Secretary Luis Caputo. The former Deutsche Bank bond trader brought a market mindset to discussions after Argentina’s previous negotiator, former Argentine minister of the economy Axel Kicillof, an academic, frequently clashed with bondholders.
“The agreement was awesome,” Caputo told reporters after emerging from the mediator’s office in New York. “We have had a good reception of the proposals and I feel optimistic.”
Montreux Equity Partners and Dart Management were the two funds that accepted the proposal, according to the ministry.
The two lead creditors, Elliott Management and Aurelius Capital Management, both declined to comment on the offer.
“This is a big step in the right direction but this is not the end of it. Until the main holdouts accept a deal it is not over,” New York-based Greylock Capital Management investment officer co-chief Diego Ferro said.
The payment is to be financed through new sovereign debt issuances.
Buenos Aires-based investment bank Puente chief strategist Alejo Costa said a cash payment placed the financing risk in Argentina’s hands and offered the investors a premium.
Pollack praised Macri’s “courage and flexibility.”
Macri’s focus on reaching a deal with holdouts contrasts starkly with the hostile stance of former Argentine president Cristina Fernandez, who refused to settle with the creditors, whom she referred to as “vultures.”
Pollack said negotiations would continue with the four leading holdout investors that had not accepted the deal.
If a settlement is reached, Macri’s next challenge would be to push it through Argentina’s left-leaning Congress, where no party holds a lower-house majority.
The offer contained two separate proposals.
The first offers holders of defaulted debt who never joined the US lawsuit full payment on the principle value of their bonds plus 50 percent, mirroring a deal reached with 50,000 Italian creditors earlier this week.
The second applies to all creditors who have sued Argentina through the US law courts. It offers a 30 percent reduction on a creditor’s total claim. If the investor agrees within two weeks, the haircut would be trimmed to 27.5 percent.
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