Argentina and holdout creditors settle 14 years after default

Argentina and its main holdout creditors on Monday reached a $4.653 billion agreement in principle to settle a sovereign debt default dispute that has lasted 14 years in a move that could help to revive the country's economy.

The deal, agreed late on Sunday and announced by the New York court-appointed mediator Daniel Pollack on Monday, says the agreement between the government and the four largest remaining holdout creditors represents 75 per cent of their full judgments, including principal and interest.

“This is a giant step forward in this long-running litigation, but not the final step,” Pollack said in his statement.

“The agreement in principle is subject to approval by the Congress of Argentina and, specifically, the lifting of the Lock Law and the Sovereign Payment Law, enacted under an earlier administration and which would bar such settlements,” he said.

Hedge fund Elliott Management, run by Paul Singer, brought numerous law suits against Argentina over the course of the dispute, with hearings before US district judge Thomas Griesa but that failed to gain a hearing before the US Supreme Court.

The remaining largest holdout investors include Aurelius Capital Management, run by former Elliott alumni Mark Brodsky, as well as Davidson Kempner and Bracebridge Capital.

A final settlement would open financing options to Argentina’s new president as he tries to improve the country’s dire fiscal mess without imposing the kind of sharp spending cuts that have gotten previous Argentine leaders removed from office.

President Mauricio Macri was elected in November promising free-market policies following eight years of protectionism under Cristina Fernandez who refused to negotiate with hedge funds suing the country over its defaulted bonds.

The holdouts rejected two prior restructurings in 2005 and 2010 that paid out roughly 30 cents on the dollar. However those investors who accepted those deals, referred to as exchange bondholders, have not been paid principal and interest on their bonds since a second default in the summer of 2014 resulting in part from New York court decisions.

Intense talks in 2014 with the Fernandez administration ended without a deal and leaving in place an injunction by Judge Griesa that no one would get their principal and interest unless all creditors were paid at the same time.

A previously scheduled hearing before Judge Griesa is still expected to take place on Tuesday in Manhattan related to the case. – Reuters