US court clears Argentina to pay hedge funds in debt battle

GMT 08:26 2016 Thursday ,14 April

Arab Today, arab today US court clears Argentina to pay hedge funds in debt battle

View of the Congress in Buenos Aires, Argentina
New York - AFP

A US federal appeals court on Wednesday cleared Argentina to make payments on its debt, paving the way for the country to settle its long battle over bonds defaulted in 2001.

A three-judge panel rejected an appeal from some holdout creditors of a March ruling that removed injunctions blocking the payments.

Argentina will thus be able to follow through on settlement deals with holdouts over some $9 billion in claims.

The appeal had held up the country's plans to raise some $12.5-15 billion on global capital markets needed to pay off the creditors, who have battled for full compensation for their bonds for years.

The injunction had prevented Argentina from servicing its existing debt, and if it remained in place, the new bonds could not have been sold.

The ruling took a decade-old battle nearer to final resolution, and analysts said it could help begin the revitalization of Argentina's economy.

Until President Mauricio Macri took office in December, Buenos Aires had rejected the claims of the holdouts, most of them hedge fund investors, labelling them "vultures" for having refused to support the restructuring of the country's debt.

But the dispute had prevented Argentina from being able to raise any more funds in world capital markets and hobbled its economy.

Reformist Macri opened new talks over more than $9 billion in claims for principal and interest on the bonds in February, and has struck compromise deals over most of them.

But some of the creditors moved to keep the court's hold on debt payments in place, worried that if it was lifted, Argentina might not fully follow through with what it promised to the holdouts.

However, the New York court said none of the compromise deals would move ahead if the country remained blocked by the injunction.

- Deadline challenge remains -

Argentina defaulted on close to $100 billion in bonds in 2001 and over the subsequent nine years reached international agreements to restructure the debt with about 93 percent of creditors, who agreed to sharp writedowns of their bonds' value.

Many of the holdouts though bought the bonds at steep discounts after the default and sued for full payment rather than back the restructuring. In a controversial decision in 2012, a New York court backed their claim.

There is still a hiccup in the process, however. The fight over the injunction delayed Buenos Aires' new bond issues, making it virtually impossible for the country to meet the April 14 deadline for payments set in the February agreements with holdouts.

But analysts said they expect creditors to agree to a little more time to allow the bond issue, already in the hands of underwriters, to get underway this week.

"We do not intend to terminate tomorrow," said Matthew McGill, a lawyer for NML Capital, one of the two hedge funds that have led the decade-long battle for payment.

"The immediate implication of the ruling is that a large $15 billion bond issuance will now take place imminently," said Edward Glossop at Capital Economics.

Of that, he said, $11 billion will go to resolve holdout and other claims left over from the 2000s.

The rest will support the country's reserves as Macri implements a difficult reform program.


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