Argentina is preparing to return to the global capital markets fray, following a landmark agreement to settle $4.65bn of debt with four US hedge funds.
The deal accounts for part of Argentina’s debt obligations dating back to 2001 and its then-record default of $94bn, which left the country banned from selling government bonds to attract private investment.
While much of the debt that stemmed from that crisis had been restructured in the years that followed, the four funds became ‘holdouts’, launching complex legal action primarily through US courts to compel Argentina to honour its obligations.
Leading the charge on behalf of the bond-holding hedge funds was Paul Singer, founder and CEO of Elliott Management Corporation, whose subsidiary NML Capital had a significant stake in the remaining debt, bolstered by substantial interest claims. Aurelius Capital Management, Bracebridge Capital and Davidson Kempner were the three other claimants.
Efforts to reach a settlement on the Argentinian side were spearheaded by new president Mauricio Macri who, after taking power in December, signalled his commitment to resolve the 15-year deadlock as the earliest opportunity.
His approach has differed starkly from that of his predecessor Cristina Kirchner, who had stubbornly opposed a settlement throughout her eight years in office and was felt by many observers to hold a contemptuous view of the legal and regulatory framework that underpinned Argentina’s ban.
Macri had initially made overtures towards the claimants in early February, winning acclaim from the Institute of International Finance (IIF), which urged both sides to continue negotiating in good faith.
“Resolution of the remaining claims,” said an IIF statement, “would normalise Argentina’s access to international capital markets to attract needed investment, reinforcing the forward momentum created by recent policy measures. Altogether, these steps would set the basis for an eventual economic recovery in Argentina.”
Daniel A Pollack, managing partner of New York law firm McCarter & English and Special Master in charge of the negotiations, praised Macri’s proactive stance, saying that his “course-correction for Argentina was nothing short of heroic”.
He added: “The Agreement in Principle, if consummated, will pay the funds managed by Elliott Management, Aurelius Capital, Davidson Kempner and Bracebridge Capital 75% of their full judgements, including principal and interest – plus a payment to settle claims outside the Southern District of New York and certain legal fees and expenses incurred by them over a 15-year period.”
Pollack also credited the claimants for their half of the achievement. “All of the senior principals of the ‘holdout’ hedge funds demonstrated vast talent,” he said. “No party to a settlement gets everything it seeks. 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.”