NEW YORK: Argentina has offered to repay under new conditions its debt to two New York hedge funds demanding a $1.33 billion payment for defaulted bonds.
In a filing shortly before midnight Friday with the 2nd US Circuit Court of Appeals in New York, Argentina offered to pay creditors who did not participate in earlier restructuring moves with either bonds equivalent to the value of the debt during the 2002 default, or discounted bonds.
Argentine President Cristina Kirchner had already said she was willing to re-extend the restructuring terms of 2005 and 2010 to hedge funds NML Capital and Aurelius Capital Management, which she has branded “vultures.”
That offer would repay bondholders around 25 cents to 29 cents on the dollar.
Those terms were already accepted by holders of 92 percent of the bonds but was rejected by the holdouts, prolonging the long-running litigation stemming from Argentina’s $100 billion sovereign debt default in 2002.
The plan faces an uncertain future, as the latest offer falls under the same terms as those offered to bondholders during the last debt swap three years ago.
“This does not involve any negotiations on the principles of previous swaps,” Argentine Vice President Amado Boudou told reporters.
“Argentina will continue to comply (with debt payments) regardless of the outcome of this filing. It is able and willing to do so.”
Boudou also rejected any possibility that Argentina would fall into “technical default,” as economists fear could take place.
If the creditors reject the new plan, the government would be forced to repay the hedge funds in full now, as US District Judge Thomas Griesa ordered late last year in a landmark ruling.
But because of “pari passu” or equal treatment clauses in the restructured bond contracts, Buenos Aires could be forced to pay back all others at the same time, possibly forcing it to default on all its debt.
“The proposal fulfills the court’s dual objectives to satisfy the pari passu clause: non-discrimination in payment priority and equal treatment among bondholders,” the Argentine filing said.
“This proposal is a voluntary option: plaintiffs can choose between being paid ‘equally’ on the same terms as the exchange bondholders, or obtaining, and seeking to execute on, judgments for the full amount of their claim.”
According to the filing, plaintiffs will receive “significant compensation” while the country’s capacity to pay will be preserved.
The proposal calls for repaying small individual investors with so-called par and GDP bonds, along with cash for the past-due interest. They would receive bonds due in 2038 at the same nominal face value as the bonds they currently hold, and pay 2.5 to 5.25 percent a year.
Meanwhile, institutional investors such as NML and Aurelius are to be offered mainly high-return discount bonds.
These would mature in 2033 and pay around 8.28 percent a year. The holdout investors would also get past due interest paid in bonds due in 2017 that would pay 8.75 percent annually.
And the bondholders would receive bonus payments whenever Argentina’s gross domestic product exceeds three percent a year.
In an October ruling, the US appeals court upheld a lower court ruling that Argentina would have to repay both sets of bonds.
Analysts do not expect the Buenos Aires plan to be accepted, leaving Argentina little legal recourse but to comply and multiply its debt problems or appeal to the US Supreme Court.
The case has sent tremors throughout the world of sovereign bonds because of the precedent it could set for the rights and treatment of investors who refuse to go along with debt restructuring pacts after defaults.
If the hedge funds are allowed to collect everything they claim, it could make it impossible for defaulters to restructure their debts without the full participation of all investors.
In a letter published in The Financial Times on Thursday, Aurelius chairman Mark Brodsky argued that was not likely to happen.
Even after the ruling against Argentina last year, he said, “Greece conducted a restructuring far larger than Argentina’s.”