Argentina To Negotiate With Hedge Fund Holdouts

Jun 19 2014 | 12:41pm ET

Argentina next week will open negotiations with hedge funds it has derided as vultures, forced to the table by the U.S. Supreme Court’s decision this week to reject its appeal of rulings ordering it to pay the holdouts from its 2001 default.

Carmine Boccuzzi, a lawyer for the country, told U.S. District Judge Thomas Griesa that he had “been informed by Argentina that authorities will be in New York next week and want to negotiate with the holdouts.” Griesa ruled two years ago that Argentina must pay the holdouts, led by Elliott Management and Aurelius Capital Management, if it wishes to continue making payments on its restructured debt.

Word of the planned talks—the first ever between Argentina and the holdouts—came on the same day that the U.S. Second Circuit Court of Appeals, which last year upheld Griesa’s ruling against Argentina, lifted the stay it had imposed on his order pending the country’s appeal to the Supreme Court. The high court on Monday declined to hear that appeal.

Lifting the stay puts Argentina on the clock: Its next coupon payment on the restructured bonds—in which investors accepted a roughly 70% loss in exchanges in 2005 and 2010—is due on June 30. Argentina then has a 30-day grace period before its second default in 13 years.

Boccuzzi sought to downplay the prospects for a breakthrough, saying that “an exchange offer is not happening at this time.” Yesterday, the Argentine Economy Ministry said that “the lifting of the stay by the Second Circuit makes it impossible to make the next payment on restructured debt in New York, and shows a complete lack of willingness to negotiate under conditions different from those dictated by Judge Griesa.”

“Pari passu (equal treatment) requirements impede Argentina from making the June 30 coupon payment to the holders of restructured bonds unless, at the same time, it pays all that is being demanded by the vulture funds, which could be up to $15 billion in total.”

In the wake of the Supreme Court decision, Economy Minister Axel Kicillof announced that Argentina would seek to avoid a default by attempting to exchange the New York law bonds for debt issued under Argentine law. That plan did not sit well with Griesa.

“The mechanism of the sort proposed by the finance minister would be a violation of the procedures and orders of the court,” he said, adding that President Cristina Kirchner’s speech following the Supreme Court ruling was “a problem.” Kirchner had called the hedge funds’ litigation “extortion.”

“Now, that really does not give me confidence in a good faith commitment to pay all the obligations of the republic,” Griesa said.

“Negotiation is fine,” Griesa added. “As a judge, what I want is a legal mechanism to prevent another situation where the republic can simply laugh off another judgment.”

Boccuzzi sought to mollify the judge, telling him that Kirchner “was not saying on June 30 let’s open a cash window someplace outside the court’s jurisdiction and pay there folks.”

Neither Elliott nor Aurelius seemed especially sanguine, either. Robert Cohen, a lawyer for Elliott’s NML Capital, said “we have been prepared to negotiate with Argentina since this matter began. If they want to talk about settlement, they know how to find us.”

“Argentina’s lawyer has informed the court that unidentified government officials will come to New York on an unidentified day next week to discuss settlement after years of rebuffing settlement overtures,” Aurelius founder Mark Brodsky said. “I have learned not to rely on any assurance Argentina’s counsel provide to our courts. I expect a charade, but I hope to be proven wrong.”

One of the hedge funds that didn’t hold out, Gramercy Funds Management, has decided not to wait for a final outcome: The firm sold most of the Argentine bonds it purchased in 2007 this year, and at a profit. Gramercy helped Argentina organize its second defaulted debt exchange in 2010.

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