Hedge funds hoping to head off another Argentine debt default have proposed to pay their peers holding out from the last default.
The hedge funds in question, including Brevan Howard Asset Management and Gramercy Funds Management, hold restructured Argentine debt. In debt exchanges in 2005 and 2010, the overwhelming majority of Argentine bondholders accepted huge losses in exchange for new bonds—but U.S. court rulings have thrown into question whether Argentina can continue to pay its obligations on those bonds while refusing to pay the holdouts, led by Aurelius Capital Management and Elliott Management.
The deal under consideration would see exchange bondholders give up 20% of their bond coupon payments for the next five years to Elliott, in exchange for Elliott ending its legal fight against Argentina—one that has, to date, been conspicuously successful. The deal does not require Argentina's approval. It has not been formally presented to the holdouts, and may face a cool reception.
"It is absurd to think that Argentina's debt problems can be resolved without Argentina's participation," a spokesman for Elliott's NML Capital unit told the Financial Times, noting that "Argentina appears to remain unwilling to come to the table."
Others questioned whether the agreement, which amounts to a further haircut for exchange bondholders, could win the 75% support it needs among them.
The U.S. Second Circuit Court of Appeals, which has already upheld a lower-court decision ordering Argentina to pay the holdouts, is currently considering whether the re-hear the case. If Argentina should lose before the court again, its only recourse would be to the U.S. Supreme Court, which earlier this month declined to hear the case.