“Argentina’s proposal accounts for past-due amounts to bring the debt current, provides for a fair return going forward, and also gives an upside in the form of annual payments if Argentina’s economy grows,” the Cleary, Gottlieb lawyers said.
The money directly at stake in this case is just a fraction of Argentina’s remaining defaulted debt, which adds up to more than $11 billion in capital and interest. This plan would also enable those creditors to get paid as well, over time, providing an equitable solution, the lawyers argued.
And to be truly fair to all, they said the new bonds would also be made available to the vast majority of investors who accepted pennies on the dollar in 2005 and 2010 for their defaulted debt.
Argentina is arguing that to do otherwise would violate the principle the court aims to uphold — the “pari passu” clause in the original bond contracts, which means the sovereign debt issuer must treat all bondholders equally.
“This proposal would provide plaintiffs with significant compensation, and — unlike the ‘100 cents on the dollar immediately’ formula adopted by the court below — is consistent with the pari passu clause, longstanding principles of equity, and the Republic’s capacity to pay,” Argentina argued.
Just who owns these bonds and at what price they were originally bought for is impossible to say. Even defaulted bonds are constantly traded, and the plaintiffs include huge hedge fund investors like billionaire Paul Singer as well as Argentine retirees who saw their much more humble life savings melt away in Argentina’s economic crisis.
Under this deal, Argentina said the mom-and-pop investors would get immediate cash for the interest that has built up since 2003, plus Par bonds and GDP bonds that would eventually make them whole.
Institutional investors would be offered a different mix, mostly discount bonds, which Argentina said would reward them handsomely.
It cited as an example nearly $50 million in defaulted debt that the lead plaintiffs, NML Capital Ltd., reportedly purchased in 2008. Accepting the mix of new bonds in exchange for these bad debts would eventually provide an aggregate profit of 284 percent, but not an unfair gain of 1,380 percent, the lawyers argued.
President Cristina Fernandez personally reviewed the proposal just before it was filed, the state news agency Telam reported.
Fernandez and her economic team are proud of sharply reducing the country’s foreign debt burden from 166 percent of GDP in 2002 to just 46 percent recently, and never failing to meet payments on the new bonds her government issued in exchange for the defaulted debt.