Argentina settled with disgruntled creditors led by billionaire Paul Singer’s Elliott Management, who had sued the country over its $95 billion default in 2001, putting an end to an epic legal battle that had dragged down South America’s second-largest economy.
Talks between government officials and the investors, including hedge funds Aurelius Capital Management, Davidson Kempner, and Bracebridge Capital, who held billions in claims on debt ended late Sunday after more than a decade of litigation that locked the country out of international capital markets and made it a pariah among global investors. Argentina will pay $4.65 billion in cash, or 75 percent of principal and interest on full claims, and will raise the funds in overseas bonds markets to do so, according to court-appointed mediator Daniel Pollack.
The accord represents a victory for newly elected Argentine President Mauricio Macri, who campaigned on a pledge to reach a deal with the holdouts and reverse the economic policies of his predecessor, Cristina Fernandez de Kirchner, who had referred to the investors as “vultures” and promised never to pay them. In restructurings in 2005 and 2010, the country imposed losses of about 70 percent on holders of the defaulted bonds. About 7 percent of creditors, including Elliott, rejected those terms and pursued lawsuits that culminated in a court order that blocked Argentina from paying its restructured debt until the nation settled with the holdouts.
Singer “was the central figure who involved himself intensely with me over the past several weeks on behalf of the ‘holdout’ bondholders. He was a tough but fair negotiator,” Pollack said in a statement. As for the Argentine officials involved in the talks, “their course-correction for Argentina was nothing short of heroic.”
Argentina has also agreed to pay some of the holdouts’ legal fees, plus a settlement for claims outside of New York, Pollack said.
Argentine bonds rose, with prices on dollar bonds due 2033, which fell into default in 2014, jumping to 117.7 cents on the dollar. Yields on current Argentine-law bonds due 2017 declined to 6.47 percent.
The agreement comes weeks after Argentina agreed to pay almost $2 billion to other holdouts, as well as another $1.34 billion to 50,000 Italian bondholders.
The accord with Elliott, which is an improvement from a formal proposal announced Feb. 5 to all the holdouts, is subject to approval from the Argentine Congress, which also needs to repeal a law that currently prevents the country from proposing terms to the holdouts that are better than those the nation offered creditors in restructurings. Congress reconvenes in March.
President Mauricio Macri took office in December vowing to reverse the policies of his predecessor Fernandez, who referred to the holdouts as “vultures” she would never repay.
With approval from U.S. District Judge Thomas Griesa, the settlement will probably allow for the release of about $3 billion of interest payments that he’s blocked since June 2014 and the reversal of his orders prohibiting Argentina from paying restructured bonds unless the holdouts were also paid. Fernandez had refused to comply with the ruling.
After eight years of Fernandez policies that put off investors, Macri needs to lure foreign money to revive a faltering economy and help restore foreign-currency reserves that hit a nine-year low in December. Within his first week in office, he lifted capital controls that had prevented companies from repatriating dividends and devalued the peso, ending years of a crawling peg that kept the currency overvalued as inflation soared.
The accord with the holdouts is the final step to allow Argentina to return to international credit markets. The country, which hasn’t sold bonds abroad since the default, has settled arbitration cases at the World Bank, paid Spanish oil company Repsol SA for the expropriation of YPF SA and negotiated with the Paris Club of creditor nations.
Before falling into default in 2014, Argentina’s international bond yields had averaged about 9 percentage points more than U.S. Treasuries since the nation’s first debt swap in 2005.
Argentina, which borrowed more money internationally than any developing nation in the 1990s, defaulted in late 2001 following a four-year recession. A one-to-one currency peg to the dollar had made local companies lose competitiveness after Brazil, its largest trade partner, devalued its currency in 1999, causing growth in Argentine to stall.
In the weeks before leaving the nation to default, former President Fernando De la Rua restricted cash withdrawals from banks to avoid a collapse of the financial system, sparking riots that left dozens dead. De la Rua resigned and was airlifted out of the presidential palace to avoid protesters. Fernandez’s husband and predecessor Nestor Kirchner took power in 2003 and negotiated a restructuring two years later that officials have called the harshest ever for sovereign-debt investors.
In a bid to collect on billions in awarded judgments that Argentina had refused to pay, Singer and other holdouts have tried seizing government assets, including a naval vessel docked in Ghana and weapons stored in U.S. warehouses.