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One of Argentina’s hedge fund nemeses has slammed the country’s attempts to put an end to a financial blockade, which received a sympathetic hearing from a US judge this week.
Argentina requested on Thursday the removal of an injunction that prevents it from paying its creditors without also paying the “holdouts” who refused debt restructurings following its 2001 default, if its Congress overturns laws blocking payment of the funds, and pays those who settle by the end of the month.
New York Judge Thomas Griesa subsequently signed an order requiring the holdouts to justify why the injunction should remain in place by next Thursday, in what was seen as a significant win for Argentina after a string of courtroom defeats over the past decade.
Argentina’s filing on Thursday follows its offer last week to pay about $6.5bn in cash to the holdouts, implying a haircut of roughly 25 per cent on claims of about $9bn. Argentina’s offer was accepted by two of the six biggest holdouts, Montreux Partners and Dart Management, which represent about 14 per cent of the holdout claims in New York.
"This is a baffling continuation of the failed strategy of the past,” said Mark Brodsky, chairman of Aurelius Capital Management. “Given the choice between accepting the substantial haircut we have offered, continuing negotiations, and litigating, Argentina chose to litigate,” he said.
Mr Brodsky argued that Dart and Montreux would receive more than 100 per cent of what they were owed. “For most other claims, Argentina proposes to pay not even 70 per cent of the claim, but 70 per cent of a substantially reduced claim — a double haircut. Holders of less than 5 per cent of the claims have accepted that haircut,” added Mr Brodsky, a former senior trader at US billionaire Paul Singer’s Elliott Management, the leading holdout hedge fund.
This is a baffling continuation of the failed strategy of the past
Elliott declined to comment on the latest developments in the long-running legal dispute. The holdouts won a victory in 2012 when Judge Griesa ruled that Argentina could not pay the holders of its restructured debt before paying the holdouts in full. That prompted Argentina’s second debt default this century in 2014.
“This is an opportunity for a reasonable solution to a really messy problem,” said Tim Samples, an assistant professor of legal studies at the University of Georgia. “The court used the injunctions to force Argentina’s hand to negotiate, and it can now use the threat of lifting the injunctions to force the holdouts’ hand,” he said, arguing that without the injunction, the holdouts’ leverage in negotiations would be seriously weakened.
Observers agree that this is a significant turnround for Argentina, which has long been at loggerheads with Judge Griesa. He was a target of withering criticism by the previous leftist government of Cristina Fernández, which refused to negotiate with what it lambasted as “vultures” and “financial terrorists”.
But the new government of Mauricio Macri, the centre-right former mayor of Buenos Aires, has made reaching an agreement with the holdouts a priority, as he seeks to put an end to Argentina’s status as an international financial pariah and enable its return to the capital markets. It would also put an end to Argentina’s 2014 default and could lead to upgrades by credit rating agencies and Argentina’s inclusion in emerging market bond indices.
“I believe special master [Daniel] Pollack pulled his strings on Argentina to get a generous offer … but he could not get the litigants to accept,” said Marcelo Etchebarne, an Argentine lawyer, referring to the court-appointed mediator who praised Argentina’s offer last week as an “historic breakthrough”. He added: “I suspect the court will now pull its strings to sort this out.”
Kevin Daly, a senior investment manager at Aberdeen Asset Management, said: “Lifting the stay would be an encouraging step to help resolve the litigation and allow the country to regain access to financial markets. The country really does need to do that. It faces a significant financial squeeze this year that regaining access to markets could assuage.”
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