Lawyer says Argentina will negotiate with US hedge funds owed $1.5 billion for defaulted bonds

NEW YORK, N.Y. – Spurned by the U.S. Supreme Court and facing a looming deadline to pay up after losing a decade-long battle over defaulted debt, Argentine officials are finally coming to the table, agreeing to negotiations next week with U.S. hedge funds who are owed a total of $1.5 billion.

Attorney Carmine Boccuzzi told Judge Thomas P. Griesa in Manhattan federal court Wednesday that Argentina wants “to have a dialogue” with bondholders who refused to exchange their bonds for new bonds at a much lower value in the years after Argentina’s economy collapsed in 2001.

“We’re trying to resolve this,” Boccuzzi said. “There is that willingness to negotiate. … Everyone is saying they want a negotiation. So Argentina is prepared to negotiate with the holdouts.”

Boccuzzi warned, though, that “payment in full to all the holdouts and to the restructured debt is something that cannot be done.”

Boccuzzi said Argentine authorities who were before Congress on Wednesday planned to be in New York next week before the judge, ready for negotiations.

His counterpart, attorney Robert A. Cohen for the bondholders, asked the judge for protection in the event Argentina follows through on threats to dodge the U.S. obligations.

“Your honour, we have been prepared to negotiate with Argentina since this began,” he said. “They know where we have been, and we would be happy to talk to them.”

Griesa reacted to Boccuzzi’s remarks cautiously, saying: “You can talk about negotiating. Negotiation is fine. But, as a judge, what I want is a legal mechanism to prevent another situation where the republic can simply laugh off a judgment.”

Boccuzzi’s comments reflecting the dire financial condition of the country came after remarks this week by Argentina President Cristina Fernandez and her economy minister, Axel Kiciloff.

They defiantly announced after a final appeal by Argentina was turned away by the U.S. Supreme Court on Monday that rather than comply with Griesa’s orders, they will try to engineer yet another bond swap beyond the reach of U.S. law.

The judge read aloud in court parts of Fernandez’s speech, calling it “unfortunate.”

In her speech, Fernandez vowed to defy what she called extortion by the holdout bondholders led by New York billionaire Paul Singer’s NML Capital Ltd. But she said her government “will not default on those who believed in Argentina” by accepting the debt swaps, and she also expressed hope that 100 per cent of the holders of Argentine debt will agree to new payment plans, opening the door to negotiations.

“The president’s speech is a problem,” Griesa said. “It was more than a political speech. It made a very strong commitment to pay the exchanges.”

He added: “That does not really give me confidence in a good faith commitment to pay all the obligations of the republic.”

Fernandez and Kiciloff said they can’t possibly pay the plaintiffs cash in full plus interest, as the U.S. courts have required. The plaintiffs in the New York litigation represent about 1 per cent of the $100 billion in debt that went into default more than a decade ago. Giving them the complete satisfaction the judge has ordered would end any hopes Argentina might have of reducing the $15 billion they say is owed to all the others whose pre-2002 bonds remain unpaid.

Adding to the pressure on Argentina, the Second U.S. Circuit Court of Appeals lifted its stay on Wednesday, putting into effect the judge’s order obligating U.S. banks to stop Argentina’s payments to other bondholders unless it complies.

That means Argentina has until June 30 to pay a group of U.S. hedge funds an initial down payment of $907 million on the $1.5 billion they’re owed.

If instead Argentina makes good on its repeated vows not to pay these plaintiffs, it won’t be able to pay an equal amount to a much larger group of bondholders, provoking a disorderly default on $24 billion in debt. This larger group exchanged 92 per cent of the paper made worthless by the 2002 default for new bonds at much lower face value in 2005 and 2010, providing the country with debt relief that allowed its economy to rebound.

Kiciloff said Tuesday that the government is “starting to take steps to begin a debt swap” to service the country’s restructured debt in “Argentina and under Argentine law.”

Griesa said such a plan would violate his court orders, and warned that financial institutions also will be in violation if they allow Argentina to send money to those who renegotiated their bonds without also paying the plaintiffs.

But he rejected a request by lawyers for the U.S. bondholders that he order Argentina to turn over much more information about its plans to deal with its financial troubles.

“We’ve got a lot of orders,” he said. “I’m not interested in further orders.”


Warren reported from Buenos Aires, Argentina