(Adds new details throughout)
By Daniel Bases and Sarah Marsh
NEW YORK/BUENOS AIRES Feb 5 Argentina offered a
$6.5 billion cash payment to creditors who hold its defaulted
bonds on Friday, seeking to end a festering legal battle that
transformed the country into a financial markets pariah.
Argentina's finance ministry said two out of six leading
bondholders had already accepted the offer and the U.S.
court-appointed mediator hailed the proposal as an "historic
breakthrough".
The offer, if accepted by all litigating bondholders, would
represent a roughly 25 percent discount, or so-called haircut
for creditors after they filed claims of about $9.9 billion.
The turning point in the decade-long legal fight stemming
from Argentina's record default on around $100 billion in 2002
comes less than two months after President Mauricio Macri, a
free-market advocate, took office and expressed his commitment
to a deal.
The finance ministry said the offer entailed "a payment of
approximately $6.5 billion if all the bondholders accept it". It
followed five days of intense talks in New York between Finance
Secretary Luis Caputo and New York hedge funds led by Elliott
Management,
"The agreement was awesome," Caputo told reporters after
emerging from the mediator's office in New York.
"Two of the most important holdout bond holders have
accepted the terms of the proposal. We have had a good reception
of the proposals and I feel optimistic."
Montreux Equity Partners and Dart Management were the two
U.S. hedge funds that accepted the offer, according to the
ministry.
Elliott Management and a second lead creditor, hedge fund
Aurelius Capital Management, both declined to comment on the
Argentine offer, which contains two separate proposals.
The first proposal offers holders of defaulted Argentine
debt who never joined the U.S. lawsuit full payment on the
principle value of their bonds plus 50 percent extra. That
mirrors an agreement reached with 50,000 Italian creditors
earlier this week.
The second proposal applies to all creditors who have sued
Argentina through the U.S. law courts. It offers a 30 percent
reduction on a creditor's total claim. If the investor agrees
within two weeks, the reduction or so-called haircut will be
trimmed to 27.5 percent.
"This is a big step in the right direction but this is not
the end of it. Until the main holdouts accept a deal it is not
over," said Diego Ferro, co-chief investment officer at Greylock
Capital Management in New York. "The good news is this shows a
commitment by the government to resolve the issues."
The payment will be financed through new sovereign debt
issuances.
Alejo Costa at the Buenos Aires-based investment bank Puente
said a cash payment placed the financing risk in Argentina's
hands and offered the investors a premium.
Mediator Daniel Pollack praised Macri's "courage and
flexibility". He said negotiations would continue with the other
four leading holdout investors.
"A happy day for everyone," said a grinning Pollack, as he
stopped to speak with reporters before resuming his walk north
on Park Ave.
If a settlement is reached, Macri's next challenge will be
to push it through Congress, where no party holds a lower house
majority.
His hopes for Congressional approval got a boost on
Wednesday when the main opposition party suffered a split,
meaning he would no longer need to negotiate with the Front for
Victory party of Cristina Fernandez to win a majority.
Fernandez refused to settle with the holdouts and branded
them "vultures."
(Additional Reporting by Tariro Mzezewa and Davide Scigliuzzo
of Thomson Reuters IFR in New York; Writing by Richard Lough in
Buenos Aires; Editing by Dan Grebler and Andrew Hay)