BUENOS AIRES – Argentina’s Congress has passed a bill that will allow the government to repay holders of debt that the South American country defaulted on in 2001, including a group of litigating hedge funds that won judgments in a New York court.
After more than 12 hours of debate Wednesday in the Senate, the bill passed by a vote of 54-16. It had been approved in the lower house of Congress on March 16.
President Mauricio Macri’s business-friendly administration had earlier reached settlement deals with holdout creditors that had refused to accept steep haircuts on the sovereign bonds – issued under U.S. law – in 2005 and 2010 debt restructurings, but he needed Congress’ approval to make the payments by the April 14 deadline.
The ruling coalition received the support of many opposition lawmakers, including members of the Front for Victory, or FPV, the party of Macri’s predecessor, Cristina Fernandez.
The head of that party’s bloc in the Senate, Miguel Angel Pichetto, raised the ire of the staunchest supporters of Fernandez and her late husband, Nestor Kirchner, by announcing that he and several of his colleagues would support the bill.
“I’m going to vote with responsibility and conviction. I’m not going to support this bill. It’s unfair for our children, grandchildren and great-grandchildren to fund this government,” FPV Sen. Nancy Gonzalez said.
The bill also gives Macri’s administration permission to sell some $12 billion in bonds on international financial markets to finance the debt repayments.
A $4.65 billion settlement was reached in late February between Macri’s administration and four U.S. hedge funds, including Elliott Management Corp. founder and CEO Paul Singer’s NML Capital Ltd., that had successfully sued Argentina in a New York federal court.
As a result of that legal battle, U.S. District Judge Thomas Griesa in Manhattan issued a ruling in 2012 that blocked Argentina from making interest payments to its exchange bondholders (those that had accepted the 2005 and 2010 restructurings) unless it first paid the holdouts in full or settled with them.
He finally moved to lift that injunction in February, just over two months after Macri succeeded leftist Cristina Fernandez, who had slammed the hedge funds as “vultures.”
Griesa said in his Feb. 19 decision, which was conditioned on Argentina repealing laws that prevented the country from settling with the holdouts, that Macri’s election had “changed everything” and that the country was now making a “good-faith willingness” to negotiate.
Macri moved quickly to reach a settlement to pave the way for Argentina’s return to capital markets after a 15-year hiatus.
The judge’s ruling put pressure on NML Capital and the three other large holdout hedge funds to settle with Argentina and accept a deal that gave them roughly 75 percent of their claims.
The Wall Street Journal reported in early March that Singer and Jay Newman, an Elliott portfolio manager, saw an opportunity when Argentina’s government debt was trading at 20 cents on the dollar “in the early days of George W. Bush’s first term,” or the start of 2001.
The financial daily added that Elliott would be handsomely rewarded for its patience, adding that the hedge fund will have made a $2.4 billion profit on its Argentina bet, or a gain of “roughly 10 to 15 times its original investment.”
The paper said that profit takes into account “over $100 million for lawyer fees and other considerations.”
The origins of Argentina’s late 2001 default, which was then the largest in history and occurred 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.