Argentina Offers Holdout Plan, Says It Will Pay Its Debts

Apr 1 2013 | 10:05am ET

Argentina has offered to pay hedge funds and other holdouts from its 2001 default about one-fifth of the $1.33 billion the largest have won in the courts, as it seeks to avoid an adverse court ruling that could push it to default once again.

The country submitted a payment plan to the Second Circuit Court of Appeals in New York on Friday, offering to exchange the holdouts' defaulted debt for either 20- or 25-year bonds. One analyst estimates that the bonds would give the largest holdouts only one-fifth of the $1.33 billion claim they've won in the courts.

Argentina has been battling Elliott Associates affiliate NML Capital and Aurelius Capital Management for years over the default debt, but has lost several key court battles. The Second Circuit has already ruled that it must treat both defaulted and exchange bondholders—the latter those who accepted huge haircuts in 2005 and 2010—the same, and a lower court has barred Argentina from paying the latter without paying the former.

The Second Circuit has stayed that ruling until it issues its own, probably within the next several weeks.

If the court again sides with the holdouts, Argentina would face a stark choice: Refuse to pay them and default on the exchange bonds, or pay them in full and risk litigation from the exchange bondholders. More than 90% of bondholders accepted one of Argentina's exchanges.

The country sought to reassure creditors that it would continue to pay its debts, although its lawyers at the Second Circuit hearing warned that Argentina was likely to ignore a ruling that it had to pay the holdouts.

"Argentina took on obligations starting in 2003 that it has met on time and will continue to meet whatever the results of our plan," Vice President Amado Boudou said. "It will continue to meet them because it has the capacity and willingness."


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