Argentina may see the light in its long and arduous battle with the so called ‘vulture’ funds, whom with the aid of New York Judge Thomas Griesa have held the South American nation hostage since it’s default in 2014 by barring the government from settling with its creditors.
Griesa decided to lift the ban on February 19 citing Argentina’s change in government as the rationale for his decision. The previous administration led by then president Cristina Fernández de Kirchner vehemently apposed cooperating with the ruling made by Griesa, and with current president Mauricio Macri’s ascent to power in December, the process of hedge fund settlements is progressing.
“President Macri’s election changed everything,” Griesa declared. “The Republic has shown a good-faith willingness to negotiate.”
Settling court claims
On February 5, Argentina proposed paying $6.5 billion in an effort to settle court claims for a balance of nearly $100 billion originating from the country’s default in 2002, the Buenos Aires Herald reported last week.
Argentine president Mauricio Macri has promised to deal with the ‘vulture’ funds as part of his campaign strategy. Documents released to the public last week showed the Argentine government accepted to pay two New York based ‘vulture’ funds a total of $1.1 billion in an effort to rectify claims over outstanding debt.
According to the court documents filed in Manhattan, Argentina promises to settle with hedge fund investor Kenneth Dart’s EM for $849.2 million if the firm signs off on the $6.5 billion Argentina is offering to pay in total.
In addition to Dart’s EM, Montreux Partners LP which was among six other major bondholders that filed the litigation against the Argentine government, will receive $298.7 million, court papers showed.
An agreement signed by Finance Secretary Luis Caputo and Montreux’s lawyer outlines that “Upon full receipt of such funds, Montreux shall provide Argentina with a full and final release and discharge and a stipulation of dismissal with prejudice of the judgments previously entered against Argentina.”
The two funds had until the February 19 to present their case to Griesa as to why he should refrain from lifting the ban against the Argentine government, which only last week requested to continue the process of debt resolution.
“Light at the end of the tunnel.”
Despite the proposal being accepted by EM and Montreux, Elliott Management’s NML Capital, which spearheaded the ‘holdout’ action, has yet to accept Argentina’s offer.
Griesa’s ruling constitutes a major blow to the hedge-fund creditors holding out for full payment, as Argentina’s offer to pay the sum of $6.5 billion constitutes between a 27.5 percent and 30 percent discount to creditors who filed litigations for nearly $9 billion.
As reported yesterday by the Economist, “The latest ruling deprives the remaining holdouts of crucial leverage over the Argentine government and improves the chances of a swift resolution to the debt saga. “It’s the most important development in the last couple of years,” says Juan Cruz Díaz of Cefeidas, an advisory firm.
“There is now light at the end of the tunnel.”
Griesa’s ruling comes in the wake of ramped inflation which is expected to reach over 5 percent this month, as well as pressure from influential Argentine union leaders calling for an increase in wages.