BUENOS AIRES – Argentina’s government issued a formal offer to its U.S. holdout creditors, proposing that they accept a 25 percent discount on the defaulted sovereign bonds they hold.
The Finance Ministry said the total payment would amount to $6.5 billion if fully accepted by the holdout creditors, so-called because they refused to accept earlier debt restructurings in 2005 and 2010, instead winning a victory in a U.S. federal court in 2012.
The proposal divides the holdout creditors into two main categories, those who obtained a judgment against Argentina from U.S. District Judge Thomas Griesa in Manhattan and those who did not join the U.S. lawsuit.
Griesa ruled in favor of one group of holdouts in 2012, including Elliott Management Corp. founder and CEO Paul Singer’s NML Capital Ltd. Citing a violation of the bonds’ “pari passu” (equal treatment) clause, he ordered Argentina to pay them $1.3 billion plus interest before making further payments to bondholders who accepted the restructurings.
Other holdout bondholders, known as “me too” litigants, won similar judgments against Argentina in Griesa’s court last year, bringing the total owed by the South American country to the litigating bondholders to around $10 billion.
Argentina was blocked from making interest payments to its exchange bondholders (those that accepted the 2005 and 2010 restructurings) when it refused to comply with Griesa’s ruling, leading credit ratings agencies to lower its credit rating to “selective default.”
In Argentina’s proposal on Friday, the holdouts who benefited from the pari-passu ruling were offered a 30 percent haircut on all principal and interest owed, although that discount could be reduced to 27.5 percent if they accept the offer prior to Feb. 19.
Those who did not sue Argentina in the United States were offered 150 percent of the bonds’ principal amount.
Friday’s offer marks the first time Argentina has issued a formal proposal to hedge funds that refused to sign on to the debt restructurings, which were accepted by 93 percent of the country’s creditors.
It comes after business-friendly President Mauricio Macri took office in December, replacing leftist Cristina Fernandez, who refused to offer the holdouts better terms than what the exchange bondholders had received.
Argentina’s Finance Ministry said two of the leading litigating bondholders – Montreux Partners and Dart Management – had already agreed to accept the offer.
Earlier this week, Argentina – which has been shut out of international capital markets – settled with a group of 50,000 Italian retail bondholders, agreeing to pay them $1.3 billion.
The course of action of NML Capital, which has maintained a hard-line position in the litigation against Argentina, remains to be seen.
NML Capital Ltd. and other hedge funds acquired Argentine bonds on the secondary market at large discounts following Buenos Aires’ massive 2001 debt default.
The Finance Ministry said the offer was subject to approval by the Argentine Congress and to Griesa lifting his block on Argentina’s payments to its exchange bondholders.
The origins of Argentina’s debt default, a decision adopted amid a financial meltdown and economic depression, go back to Argentina’s 1976-1983 military regime, which presided over a 465 percent expansion in public indebtedness.