Argentina puts forward alternative payment plan in bond dispute

NEW YORK, March 30 Sat Mar 30, 2013 12:54am EDT

NEW YORK, March 30 (Reuters) - Argentina on Friday pitched an alternative payment formula to a U.S. appeals court that would allow it to resolve litigation with creditors holding defaulted bonds for which they are demanding to be paid $1.33 billion.

In a filing with the 2nd U.S. Circuit Court of Appeals in New York, Argentina proposed to pay creditors who didn't participate in two restructurings through a choice of bonds equal to the debt's value at the time of the country's 2002 default, or through discount bonds.

The offer was under the same terms as those offered to creditors during a 2010 debt swap, a deal already rejected by the holdouts, who are seeking full payment immediately.

"The Republic is prepared to fulfill the terms of this proposal promptly upon Order by the Court by submitting a bill to Congress that ensures its timely implementation," Jonathan Blackman, Argentina's U.S. lawyer, wrote.

The filing was the latest development in the long-running litigation spilling out of Argentina's $100 billion sovereign debt default in 2002. Around 92 percent of its bonds were restructured in 2005 and 2010, with bondholders receiving 25 cents to 29 cents on the dollar.

But holdouts led by Elliott Management affiliate NML Capital Ltd and Aurelius Capital Management have fought for years for full payment. Argentina calls these funds "vultures."

In October, the 2nd Circuit upheld a trial judge's ruling by finding Argentina had violated a so-called pari passu clause in its bond documents requiring it to treat creditors equally.

U.S. District Judge Thomas Griesa in Manhattan subsequently ordered Argentina in November to pay the $1.33 billion owed to the bondholders into an escrow account by the time of its next interest payment to holders of the exchanged debt.

The 2nd Circuit heard an appeal of that order on Feb. 27. Two days later, it directed Argentina to provide details of "the precise terms of any alternative payment formula and schedule to which it is prepared to commit."

'PAR' BOND OPTION

In its 22-page submission late Friday, Argentina said that under what it calls the "Par" bond option, the bondholders would receive bonds due in 2038 with the same nominal face value of their current bonds. The Par bonds would pay interest at a rate that rises from 2.5 percent to 5.25 per annum over the life of the bonds, Argentina said.

The plaintiffs would also receive an immediate cash payment of past due interest, Argentina said. And they would receive derivative instruments that provide payments when the country's gross domestic product exceeds 3 percent a year.

The holdouts could receive discount bonds due in 2033 that pay at higher rates than the Par bonds, 8.28 percent annually. They would also increase in principal over time.

The holdouts would also receive past due interest in the form of bonds due in 2017 paying 8.75 percent a year, and GDP-linked derivative units.

The Par option is restricted to small investors wanting to tender up to $50,000 per series of bonds, the filing said, while there is no limit on the discount option.

Blackman, Argentina's lawyer, wrote that the proposal, unlike what he called the "100 cents on the dollar immediately" formula Griesa adopted, "is consistent with the pari passu clause, longstanding principles of equity, and the Republic's capacity to pay."

Argentina argued its proposal meant "substantial" benefit for the holdouts. NML, which it said paid an estimated $48.7 million in 2008 for its stake in the bonds, could net $186.82 million through the discount option.

That compares to the $720 million total it claims in litigation, Argentina said.

A NML spokesman did not immediately respond to an email seeking comment late Friday, while a spokeswoman for Aurelius had no immediate comment.

Earlier this week, the holdouts scored a victory over Argentina when the 2nd Circuit denied a full court review of its October ruling on the equal treatment provision.

The United States had backed Argentina in seeking the review, contending the 2nd Circuit's decision ran "counter to longstanding U.S. efforts to promote orderly restructuring of sovereign debt."

The case is NML Capital Ltd et al v. Republic of Argentina, 2nd U.S. Circuit Court of Appeals, No. 12-105.

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