BUENOS AIRES – The first day of 2015 marked the expiration of a legal clause Argentina has cited as the reason it cannot make concessions to creditors who declined to accept the terms of the 2005 and 2010 debt restructurings.
The restructuring accords included a clause, known as Rights Upon Future Offers, or RUFO, that promised equal treatment to all bondholders.
The clause was meant to provide assurance for the creditors who accepted the restructurings, which involved substantial “haircuts.”
Among the 7 percent of creditors who boycotted the restructuring deals were a group of hedge funds that sued Argentina in the United States for full payment on bonds they bought at large discounts following Buenos Aires’ massive 2001 default.
In 2012, U.S. District Court Judge Thomas Griesa ruled in favor of the litigating hedge funds, ordering Argentina to pay them $1.3 billion plus interest.
He also barred Argentina from paying the exchange bondholders, whose securities are governed by U.S. law, without simultaneously paying the holdouts.
President Cristina Fernandez’s administration said full payment to the hedge funds would lead other holdout bondholders to demand the same under the RUFO clause, creating a potential liability of some $15 billion, equivalent to roughly half of Argentina’s foreign-exchange reserves.
Because Buenos Aires has refused to settle with what it terms “vulture funds,” it has been unable to service its debt to the vast majority of its creditors, prompting rating agencies to declare a technical default.
Thursday’s expiration of the RUFO clause could, in theory, open the door to serious negotiations between Argentine and the litigating hedge funds.
As of now, however, there are no plans for the contending parties to meet with each other or with Daniel Pollack, designated by Griesa as a mediator.
Argentine media report that the hedge funds who won the judgment against Buenos Aires are seeking a consolidation of their litigation with suits filed by other holdout creditors who say Argentina owes them $4.4 billion.
“The strategy of the national government is always the same: we want negotiating conditions that are fair, equitable, reasonable, legal and sustainable for 100 percent of the bondholders,” Argentine Cabinet chief Jorge Capitanich said earlier this week.
The litigating hedge funds are led by Elliott Management Corp. founder and CEO Paul Singer’s NML Capital Ltd.
“Argentina is capable of paying all of its creditors. It is a G-20 country with vast natural resources that simply refuses to pay,” Jay Newman, a senior portfolio manager at NML Capital, said this week in an interview with Buenos Aires daily La Nacion.
Argentina defaulted on roughly $100 billion in debt in December 2001 – at the time the largest sovereign default in history – amid a financial meltdown and economic depression.
The origins of the debt problem go back to Argentina’s 1976-1983 military regime, which presided over a 465 percent expansion in public indebtedness.