Case study on Sovereign Debt (Argentina)

After all the noises, both still have to come back to the negotiation table. The "vultures" haven't given up...

Argentina to negotiate with 'vulture funds' in January: mediator
22 Dec 2015 07:09
[NEW YORK] Argentina's new conservative government will begin negotiations with holdout creditors branded "vultures" in the second week of January, the New York arbitrator in the long-stalled process said Monday.

Daniel Pollack, the special negotiator appointed to seek a compromise between Buenos Aires and creditors led by two hedge funds, announced the talks following an hour-long meeting with senior envoys of President Mauricio Macri including his finance secretary Luis Caputo.

"The meeting was constructive, covering a range of issues, and it was agreed that they will return to New York City in the second week of January to commence substantive negotiations with the Bondholders," said Mr Pollack, who was appointed by US district judge Thomas Griesa.
...
AFP

Source: Business Times Breaking News

The case, should be closed soon, with the new Argentina President, when ego has put aside. The "vultures" might get what they wanted, albeit not fully.

Argentina Reaches Deal to Settle Bond Default Lawsuit

BUENOS AIRES—Argentina has reached a deal to settle a class-action lawsuit over bonds that the country defaulted on in 2001, a U.S. court-appointed mediator said Tuesday.

The settlement is part of the country’s ongoing negotiations with a broad group of creditors owning defaulted bonds.

“The exact size of the class will not be known for several weeks,” the mediator, Daniel Pollack, said in a statement.

Mr. Pollack said the deal calls for Argentina to pay 100% of the principal and 50% of the interest for each member of the class-action suit, known as the Brecher Class Action suit.
...
http://www.wsj.com/articles/argentina-re...1455663817

The case is almost closed, by the settlement. Vulture win, and Argentina didn't lose, if you view it from a broader perspective, IMO.  What lesson can we learn from the case study? 

Factbox: Argentina and creditors settle historic sovereign debt dispute

NEW YORK - Argentina and its main holdout creditors have reached a $4.653 billion agreement in principle to settle a 14-year-old sovereign debt default dispute, a deal that could help the country to return to international capital markets and revive its economy.

The deal, agreed late on Sunday and announced by the New York court-appointed mediator Daniel Pollack on Monday, will see the four largest remaining holdout creditors get paid 75 percent of the amount outstanding on their judgments, including principal and interest.

Pollack held a press conference in New York where he outlined some of the details of the unpublished 10 paragraph agreement that sets the terms for settling the dispute that stems from a $100 billion sovereign default in early 2002.

Here are details of the deal revealed by Pollack as well as historical background of the case:

* The agreement in principle was signed between Argentina and Elliott Management, Aurelius Capital Management, Davidson Kempner and Bracebridge Capital.

* The claims by these holdout investors were brought before U.S. District Judge Thomas Griesa in the Southern District of New York. They amounted to $5.891 billion.

* Under the terms of the settlement agreement, the holdouts were paid 75 percent of their claims, approximately $4.4 billion, amounting to what is referred to as a 25 percent haircut

* An additional payment of $235 million is to be paid to the holdouts to settle all of their claims outside of the Southern District as well as legal fees and expenses over a 15 year period.

* If the payment is not made by noon eastern standard time on April 14, 2016, then the agreement could become null and void if the two sides do not agree an extension.

* This haircut is less than the 27.5 to 30 percent haircut offered by Macri's government when it announced its terms for a resolution on Feb. 5. The government offered a pot of money, $6.5 billion, to settle the claims.

* Two large holdout investors, Dart Management and Montreux Equity Partners accepted the proposal when initial terms were released on Feb. 5.

* Argentina plans to raise capital in the international markets, approximately $15 billion, in order to pay for the settlement. The holdouts pledge not to attempt to interfere with that capital raise.

* Technical details for executing the payment have yet to be finalized, Pollack said.

* The agreement with these holdouts, led by Elliott and Aurelius, stems from a $1.33 billion judgment in 2012 by Griesa in their favor. Interest accrued from that time forward. At the time of Griesa's ruling in 2012, a source familiar with NML's position said the firm accounted for between 45 and 50 percent of that court award. Aurelius's position is smaller, a second source told Reuters at the time. REUTERS
http://www.todayonline.com/business/fact...epage=true

I think there are a few things to learn from this episode:

1) It takes a really long time and patience to mess with governments... to wait for them to blink
2) the credit risk of a country's foreign currency liability might be higher than a corporate because there is no asset to seize. I thought Elliot was very innovative to seize an Argentine navy ship.
3) If not for the fact that Argentina needs foreign US$ funding, they might have to wait another 14 years. That's why a NY Court has power over a sovereign.
4) Opportunity cost of 14 years with no interest and 25% haircut. Original investors holding till resolution would have knocked out. Elliot and gang think tripled their money buying around 25cts to $. Is it worth the effort for 14 years of legal entanglements for vulture-investors-wannabe?

http://www.wsj.com/articles/hedge-funds-...1403143119

More importantly I think Latin America will continue this cycle of addiction to USD funding. I won't be surprised if this thread is reused again 5 years down the road They are like credit cards junkie that can't resist increasing debt.

These sovereign 'vultures' actually operate very similarly to distressed debt investors of corporates (like the esteemed Howard Marks). One key standout would be the margin of safety (25cts on the dollar) that these vultures were able to establish. On hindsight, the margin of safety worked out perfect with the risk-reward ratio that was skewed towards the vultures. I reckon they were able to see that on 1 end, these distressed bonds were just one portion of their entire portfolio, but on the other end Argentina had everything to lose if they couldn't secure USD funding (provided that China didn't come in to mess things up).

The glaring lesson I learnt here is that one needs to know how to carry out the enforcement of the rules (ie. HOW to get back your money).

The case is closing soon...

Argentina reaches deals with more holdout creditors
10 Mar 2016 06:39
[NEW YORK] Argentina reached repayment deals with more holdout creditors on Wednesday as it seeks to close the door on 15 years of litigation over its defaulted bonds.

Daniel Pollack, the New York court-appointed arbitrator in cases involving some US$9 billion in claims against the country, said settlement agreements were struck with hedge fund GMO (Boston), French bank BNP Paribas, and a number of individual investors worth a total of US$190 million.

That took to more than US$6.5 billion the amount Argentina has agreed to pay holdout creditors covered by the Pollack-led negotiations.

It was not clear how much more have not been addressed. Breaking with years of refusal by Buenos Aires to repay the holdout bondholders, at the beginning of February the new government of President Mauricio Macri offered US$6.5 billion to resolve their claims of US$9 billion.
...
AFP

Source: Business Times Breaking News

It is definitely cost more for Argentina not to settle the payment...

Argentina, creditors agree US$253 mil more in default settlement

NEW YORK (April 11): Argentina settled with additional creditors holding defaulted sovereign bonds for US$253 million ($341 million), Daniel Pollack, the court-appointed mediator in the long-running case, said in a statement on Sunday.

The agreements in principle reached late last week with several groups of creditors bring the aggregate amount of settled claims to approximately US$8 billion, the statement said.

"In my capacity as Special Master, with the responsibility for presiding over the conduct of settlement negotiations, I am extremely gratified that holders of approximately 90 per cent of bonds at issue in the cases in the Southern District of New York have now reached settlements with Argentina," Mr Pollack said in his statement.
...
http://www.theedgemarkets.com/sg/article...settlement

I am interested to know the pricing...

Argentina wows market with first bond in 15 years
19 Apr 2016 07:13
[NEW YORK] Argentina got an enthusiastic welcome back to the club of borrower nations on Monday, amassing more than US$65 billion in orders for its first international bond in 15 years.

A market pariah since defaulting on its debt in 2001, the country clearly won over investors with an up to US$15 billion bond whose proceeds will help pay its long-complaining creditors.

The surge of demand for the bond, which will price on Tuesday, allowed Argentina to set pricing guidance close to its optimistic funding costs for the ground-breaking deal. "It is fantastic that Argentina is accessing the market,"said John Baur, a portfolio manager at Eaton Vance. "This is certainly a very important step in the direction of improving the future of Argentina economically."
...
REUTERS

Source: Business Times Breaking News

(19-04-2016, 09:36 AM)CityFarmer Wrote: I am interested to know the pricing...

Argentina wows market with first bond in 15 years
19 Apr 2016 07:13
[NEW YORK] Argentina got an enthusiastic welcome back to the club of borrower nations on Monday, amassing more than US$65 billion in orders for its first international bond in 15 years.

A market pariah since defaulting on its debt in 2001, the country clearly won over investors with an up to US$15 billion bond whose proceeds will help pay its long-complaining creditors.

The surge of demand for the bond, which will price on Tuesday, allowed Argentina to set pricing guidance close to its optimistic funding costs for the ground-breaking deal. "It is fantastic that Argentina is accessing the market,"said John Baur, a portfolio manager at Eaton Vance. "This is certainly a very important step in the direction of improving the future of Argentina economically."
...
REUTERS

Source: Business Times Breaking News

The initial reports are indicating a yield of 7-8%.

Personally, I wouldn't touch Argentine debt for that yield, one can get corporate junk bonds for >10% yields if you so decide to play this game.
Argentine debt is much more risky than several of the companies issuing these junk bonds IMO.

The money is seen by the vulture funds. An official closure by the milestone...

Argentina pays 'vulture funds' to end debt saga
23 Apr 2016 07:51
[BUENOS AIRES] Argentina repaid the so-called "vulture funds" on Friday that sued it over billions of dollars in defaulted bonds, ending a 15-year saga and restoring its good standing on international credit markets.
...
AFP

Source: Business Times Breaking News