U.S. Judge to Lift Injunction in Argentina Debt Dispute
Argentine congress must remove law preventing holdout creditors from getting paid more than 30 cents on dollar
A U.S. federal judge said he is prepared to lift an injunction that has prevented Argentina from returning to the international capital markets, paving the way for a potential settlement with bondholders who have battled Argentina for years.
The decision is welcome news for Argentina and President Mauricio Macri, who has made resolving the long-running dispute a priority. A group of U.S. bondholders, led by billionaire Paul Singer’s Elliott Management Corp., have been wrangling with Argentina over payment on its defaulted government debt.
Argentina has been effectively barred from raising money in the international bond markets since its default in 2001 on more than $80 billion in government bonds, the largest sovereign default at the time. The new administration views a global bond offering as crucial for raising capital to stimulate an economy mired in recession.
“The injunctions, once appropriate to address the Republic’s recalcitrance, can no longer be justified,” U.S. District Judge Thomas Griesa wrote Friday in his ruling.
A spokesman for Elliott declined to comment on the judge’s decision. A spokeswoman for Argentina’s finance ministry said the government would continue to seek agreements with more bondholders.
Judge Griesa’s move doesn’t guarantee a quick resolution to the long stalemate. The judge said he would lift the injunction if Argentina’s Congress removes a local law that prevents holdout creditors from getting paid more than the 30 cents on the dollar.
Mr. Macri is certain to encounter some opposition to changing the laws. His predecessor, Cristina Kirchner, had long opposed settling with the holdouts, calling them “vultures” and “financial terrorists.” Mrs. Kirchner retains a significant bloc of loyal supporters in Congress, many of whom have vowed to oppose a deal.
“To convince people and win over Congress, Macri’s government needs to show that it negotiated well, that it went to New York and fought for Argentina’s interest,” said Juan Cruz Díaz, managing director of Cefeidas, a risk advisory firm in Buenos Aires.
Some are cautiously optimistic. Mr. Macri, who took office on Dec. 10, has been meeting frequently with opposition politicians, key governors and leading legislators to build support for the deal in Congress.
“This is very, very important news,” said Miguel Kiguel, a former Argentine finance secretary. “I think Macri will have all the support he needs.”
A settlement could also face entanglements in the U.S. Legal experts who have followed the case closely say the decision is likely to lead to more litigation, with bondholders suing to block payment or appealing to a higher court.
“There’s an enormous risk that the legal process will overtake what were very productive negotiations, which would be very unfortunate,” said Charles Blitzer, an economist and former senior IMF staffer, who has been involved in many sovereign-debt restructurings.
Argentina requested the injunction be lifted after earlier this month offering to pay bondholders 72.5% of claims, or 150% of the principal of their bonds. Most of the creditors refused the offer, saying it unfairly rewarded some creditors over others.
In his decision, Judge Griesa said he “takes no position” on the reasonableness of Argentina’s offer. He said he is prepared to lift the injunction because he believes the nation has shown a “good-faith willingness to negotiate with the holdouts.”
Representatives from Argentina were in New York on Friday meeting with the lead bondholders in the case and sources close to the negotiations have said the two sides are still wrangling over the details of a proposed settlement.
Hundreds of creditors represented in dozens of lawsuits pleaded against lifting the injunction in court filings this week, and requests to present oral arguments before the judge were unanswered.