The long running saga on the default of Argentinian government bonds in 2002 looks a little closer to settlement after the government made its first formal offer to US bondholders to buy back outstanding bonds that are in default. The offer would return around 75% of the bonds’ face value.
In short, the battle is over a group of US bondholders that bought around USD$4 billion of distressed debt a number of years ago at a few cents in the dollar and that have subsequently fought through the courts arguing their entitlement to be paid out 100% of face value on the bonds. In 2005, the government made a deal with around 93% of bondholders that would have seen the bondholders paid out 30 cents in the dollar. The “holdout” funds have relied on the issuing documents that say bondholders cannot be treated differently.
The holdout funds have even resorted to legal action to seize Argentinian assets such as central bank deposits in the Federal Reserve Bank in New York, the presidential aeroplane and a navy frigate that was in port in Ghana. Sovereign immunity laws eventually saw these legal tactics as being ineffective.
The lack of an agreement has meant Argentina has been largely unable to access international markets for finance.
Complicating matters further is the fact that a large number of bondholders are ordinary Argentinians that have expressed resentment over the tactics employed by the US funds. They say the government is being held to ransom and that payments agreed with them have been held up in the legal battles. There has been comment that the resentment is so strong they may in any case reject any offer to pay the US funds 100 cents in the dollar.
It is long and complicated saga but the recent offer is a sign that the newly elected and business friendly president of Argentina wants to settle the acrimonious dispute soon.