Argentina seeks compromise with holdout creditors

The new administration in Argentina hopes to end a long-running dispute with bondholders that rejected restructuring debt swap options

Alfonso Prat-Gay, Argentina's new finance minister, said that Argentina would honour its debts while pursuing a compromise on costs of accumulated interest 

Argentina’s recently elected new government hopes to end its long-running legal dispute with US hedge fund creditors. Speaking at Davos, Argentina’s finance minister, Alfonso Prat-Gay, said that his country would honour the debts that it owes to bondholders while pursuing a compromise on costs of accumulated interest.

Known as holdout creditors, these government bondholders, led by Paul Singer’s Elliott Management Corporation, have rejected the reduced repayments of bonds.

The dispute has been ongoing since Argentina’s debt restructuring, following its financial crisis in the early 2000s, and has included a number of debt swap options to bondholders. While most creditors accepted the debt swap, a minority – seven percent – refused, demanding to be repaid by the beleaguered economy in full. Since then, other hedge funds have purchased the disputed bonds, allowing them to continue pressing forward with recovering Argentinian debts.

Holdout bondholders have attempted to pursue their claims in US courts. While courts have ruled that the holdouts were entitled to be repaid the full face value of the bonds they held, sovereign immunity laws have prevented attempts to seize Argentinian assets in order to recover loses.

The dispute, however, has resulted in Argentina being effectively barred from international credit markets. While the previous Argentinian administration under leftist president Cristina Kirchner had vowed to not to pay what she termed ‘vulture funds’ any more than the amount that the majority of creditors accepted in the restructuring debt swap options, the nation’s new centre-right administration hopes to reach a compromise.

Prat-Gay has said that he wants “to put an offer on the table” with the creditors, offering to “discuss the interest bill” that has accumulated. At present, creditors are asking for 350 cents on the dollar in accrued interest: Argentina is offering 120 cents. A meeting is due to take place between creditors and Argentinians officials in New York on February 1, according to the Financial Times.