Argentina has reached a deal to pay "holdout" creditors led by hedge funds NML Capital and Aurelius Capital Management after a 15-year legal battle, mediator Daniel Pollack announced Monday. Pollack said an in-principle deal was struck late Sunday for the country to pay NML, Aurelius and two other funds $4.65 billion "to settle all claims."
"It gives me greatest pleasure to announce that the 15-year pitched battle between the Republic of Argentina and (NML owner) Elliott Management, led by Paul E. Singer, is now well on its way to being resolved," Pollack said in a statement. The deal came after Argentina's President Mauricio Macri reversed his predecessor Cristina Kirchner's adamant refusal to pay after he took office in December and quickly entered negotiations with the bondholders.
Argentina will pay NML, Aurelius and the two other funds 75 percent of what they had demanded, including principal and interest and some legal fees and expenses, according to Pollack. The case arose from Argentina's default on nearly $100 billion in debt in 2001. The holdout bondholders refused to join 93 percent of the country's creditors in restructuring its debt, and demanded the full value of their bonds. Those in the restructuring accepted around 70 percent writedowns.
The case introduced new challenges to the global sovereign debt market, where worries arose that if holdouts could claim full payment, creditors in a default would be less likely to join in restructuring plans necessary to help financially stressed governments back to their feet.
Repaying the hedge funds, which Buenos Aires had labelled vultures for scooping up its defaulted debt at deep discounts and demanding full payment, will cost the country a sizable chunk of its foreign reserves. But it will allow Argentina to return to international capital markets where the country plans to issue new debt to clear out the old ones.
Pollack said that the deal still faced several conditions to be completed. Argentina's National Congress must lift legal bans on making payments to the holdout creditors. In addition, the New York court where NML and the others won a landmark judgement against Argentina in 2012 must lift an injunction on the country that effectively prevents it from accessing capital markets.
Argentina has already tentatively arranged to issue billions of dollars' worth of new debt to clear the holdout claims, but needs the injunction to be lifted to do so. Pollack said the holdouts agreed in the new deal not to interfere with its capital-raising. "It is hoped by the parties that all necessary steps can be taken in a period of six weeks," he said.
Pollack praised Macri and his aides for "heroic" efforts to resolve the case. Macri "immediately upon his election in November, set about to change the negative course that the Republic had steered in this litigation," he said. He also praised Singer - a billionaire who has built a fortune by buying up defaulted and deeply discounted sovereign debt and suing the issuers - for his personal involvement in the final talks, calling him "a tough but fair negotiator." "No party to a settlement gets everything it seeks," Pollack said. "A settlement is, by definition, a compromise and, fortunately, both sides to this epic dispute finally saw the need to compromise, and have done so."
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