--Says Suspension Will Allow Time to Talk with Holdouts
BUENOS AIRES (MNI) - Argentine Economy Minister Axel Kicillof said Monday
that the country will request the suspension of a ruling that requires the
government, at the end of the month, to pay back creditors who won a U.S. court
battle to collect on bonds leftover from a $100 billion default in 2001.
The lawyers representing the country will make the request later Monday to
U.S. federal judge Thomas Griesa, who is hearing the case, Kicillof said on
television.
"We will ask for a suspension so that we can open up dialogue without
failing to comply with our obligations," Kicillof said.
Argentina must pay back the plaintiff creditors about $1.5 billion in cash
when the next payment falls due on the bonds restructured from the 2001 default.
The next payment is due June 30, when Argentina must transfer $900 million to
the restructured bondholders.
Griesa ruled in favor of the plaintiff creditors in 2012, basing his
sentence on pari passu, an equal treatment of creditors clause in the contracts
of the bonds. The payment, however, was suspended by a stay order until the U.S.
Supreme Court could make a decision on the case.
On June 16, the Supreme Court declined to hear Argentina's appeal in the
case, lifting the stay order by a lower court.
This has pushed Argentina to the brink of its second default in 13 years,
with government officials scrambling to find a solution.
At first, Argentine President Cristina Fernandez de Kirchner slammed the
plaintiff creditors for trying to profit from the country's demise, saying they
stand to make a return of 1,600% on their investment in the defaulted bonds. She
said she would not "submit the country to extortion."
That was followed by the announcement of plans to change the jurisdiction
and law of the restructured bonds through a voluntary exchange offer so that
Argentina could continue to service its debt without the threat of seizures. The
plaintiffs can seize the debt payments in the U.S., where they must be made, to
collect what they are owed, meaning that Argentina has to pay both at the same
time or enter into default.
But CFK decidedly toned down her comments last Friday, saying she's willing
to negotiate and will seek a fair settlement with the plaintiff creditors, among
them a hedge fund run by U.S. billionaire Paul Singer.
She said, however, that any negotiated solution must be "fair and
equitable" to 100% of the holders of the bonds from the 2001 default, those
restructured and those still in arrears.
Kicillof continued with the same line of argument.
"We think that the suspension of the stay is essential so that Argentina
can continue to pay its restructured bondholders as normal," he said.
He said this would provide more time to "carry out a dialogue in equitable,
fair and legal conditions for 100% of the creditors."
Kicillof added that Argentina can't voluntarily pay the plaintiff creditors
more than the 92.4% of bondholders who accepted about 30 cents on the dollar in
the 2005 and 2010 restructures. He said that such a payment would violate a
domestic lock-law on such an offer.
It would also violate a clause in the restructure contracts that prevents
Argentina from paying more to creditors that held out of the offers, he said.
This 'rights upon future offers' clause, or RUFO, means that restructured
bondholders can collect anything that is paid in addition to the 30 cents on the
dollar they received until the clause expires Dec. 31, 2014.
Last week, CFK said if Argentina were to pay the plaintiffs back more than
the restructured bondholders, this would expose the country to claims of up to
$15 billion by the holdouts and up to $120 billion by those holding the
restructured bonds.
The $15 billion payment is about half of the country's $28 billion in
foreign reserves.
"Argentina wants to pay 100% of the bondholders in equitable terms and in
line with the contracts from the restructures," Kicillof said. "To do this, we
must pay on time" the restructured bondholders.
Inflated Numbers?
There are suggestions that Argentina is inflating the numbers in the case
as a negotiating tactic.
"The $15 billion is a questionable figure," Bruce Wolfson, an attorney who
specializes in the restructures of emerging market debt at Bingham McCutchen in
New York, said in a media teleconference Monday. "There is no clarity of where
those numbers are coming from."
He estimates that the debts in a similar situation - such as as those of
the plaintiff creditors - is about $6 billion, and that some of the holdout
creditors may have to pursue lengthy court proceedings to demand the same
treatment.
In relation to $120 million claim, there is a question of whether a court
order is a voluntary offer to the plaintiff creditors that would spark the RUFO,
Wolfson said.
"One could certainly argue that Argentina has fought making a payment to
the holdouts as hard as it could possibly fight. It has been up to the Supreme
Court twice and lost," Wolfson said. "If it is not a voluntary payment, there is
no RUFO."
He added that there are creative solutions to settle with the plaintiff
creditors without triggering the RUFO.
Wolfson said that whatever the number, if Argentina settles its outstanding
debts in default then it will be able to remove the threat of litigation so it
can return to capital markets and lower its borrowing costs.
Claudio Loser, a fellow at Latin American Dialogue and former Western
Hemisphere director of the International Monetary Fund, said that whether it is
$6 billion or $9 billion, it is still no more than 2% of GDP.
The payment of the holdout debt "can be incorporated into the budget," he
said on the teleconference.
"In my view, there is the ability to pay," he said.
By settling, Argentina would gain access to global financial markets "to
obtain a lot of financing," he said. "Argentina will see a much lower cost of
borrowing that will very quickly compensate the cost of the settlement."
Loser said that the settlement, in turn, "will be crucial for bringing the
resources and the potential back to Argentina."
** MNI - Buenos Aires **
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