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Vulture funds win the battle
Latinamerica Press
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Government reaches an agreement with the four largest creditors who did not accept the debt swap.

After 15 years of dispute, on Feb. 29 the Argentine government and creditors who did not accept the debt swaps in 2005 and 2010 reached an agreement. The government will pay US$4.6 billion, 75 percent of the vulture fund value, including principal, interest and legal fees.

According to Special Master Daniel Pollack, the Argentine government has to pay that amount “in cash and in dollars” by Apr. 14. Meanwhile, Congress has to repeal the so-called Deadbolt (2005) and Sovereign Payment (2014) laws enacted in order to protect Argentina’s financial sovereignty from the vulture funds, entities specialized in buying debts of countries in serious financial problems to then demand payment through the courts and make the most money possible.

“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,” said Pollack, appointed by judge Thomas Griesa, of the Court for the Southern District of New York, to preside over settlement negotiations between Argentina and the holdout bond holders.

In 2014, Griesa, 85, froze payments to creditors who had agreed to restructure debt until Argentina also paid four US vulture funds — Aurelius Capital, Davidson Kempner, Bracebridge Capital and Elliot Management — who had refused the debt restructuring.

In an article published in the newspaper Pagina 12, former Minister of the Economy Axel Kicillof said that during the government of former President Néstor Kirchner (2003-2007), Argentina offered to pay creditors $ 0.35 for every dollar of debt.

To Kicillof, Kirchner’s offer “was really aggressive”.

“If Néstor [Kirchner] offered $ 0.35 cents per dollar, Griesa wants Argentina to pay $ 4 for every dollar,” he said. “But we must also bear in mind that the vulture funds paid just $ 0.25 for every dollar. They never lent money to Argentina but they bought the debt after the default [of 2001] and even after the restructuring for the specific purpose of finding a judge who would side with them. Griesa’s ruling satisfies that goal and gives them a profit of 1,600 percent, which, with the discount offered by the government of [President Mauricio] Macri, would be reduced to 1,200 percent!”

Agreement conditions
The story began in December 2001 when Argentina’s economy exploded and the country was declared in default. After taking office in 2003, Kirchner summoned the creditors to join a process of debt restructuring which at that time amounted to $144 billion. The 92.4 percent of bondholders accepted the proposal to receive only 25 percent of the amount owed to them. Part of the remaining 7.6 percent that did not go into the debt restructuring process was purchased in 2008 by the vulture funds that paid less than 30 percent of the value, but they legally demanded that Argentina pay them 100 percent of the debt plus interest.

Minister of the Economy Alfonso Prat-Gay said at a news conference that because the deal involves a cash payment, the government will issue bonds for up to $15 billion “that will not be delivered to creditors, [but that] would be put in the market to be more profitable and save $3 billion”.

Payment to creditors, Prat-Gay said, “will not come from the Central Bank reserves”.

The Minister also asked Congress to repeal the two legal provisions that Griesa demanded to validate the agreement with the vulture funds. The Deadbolt Act prevents the government from making a better offer than the one made to bondholders and creditors who negotiated debt restructuring in 2005 and 2010. The Law on Sovereign Payment — which attempted to circumvent Griesa’s ruling that blocked payment to creditors who accepted the restructuring — allows Argentina to deposit the amount of the restructured debt in a special account outside US jurisdiction.

Prat-Gay said that the government will send Congress “a bill to implement the agreement.” — Latinamerica Press.

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