* Most defaulted bonds were restructured in 2005 and 2010
* Argentina vows to pay restructured bonds no matter what
* Holdouts want 100 cents on the dollar
By Nate Raymond
NEW YORK, March 30 Argentina is pitching 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 late on Friday with the 2nd U.S. Circuit Court
of Appeals in New York, Argentina proposed to pay creditors who
did not 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.
And the par-value option was only for investors with less
than $50,000 in face value bonds, effectively meaning the hedge
fund plaintiffs pursuing the case could really be compensated
under Argentina's plan only by taking a big cut to their
Elliott Management affiliate NML Capital Ltd, one of the
lead plaintiffs, stands currently to receive $720 million from
Argentina following a New York judge's order in November,
according to Argentina.
But the discounted bonds NML could take had a market value
of just $186.8 million before a major decision in the case last
October favoring the holdouts, or $120.6 million as of March 1,
the filing said. Argentina estimates NML paid about $48.7
million in 2008 for its stake in the bonds.
"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 NML Capital 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."
In its 22-page submission late on Friday, Argentina said
that under a so-called par bond option, the bondholders would
receive new bonds due in 2038 with the same nominal face value
of their current bonds. They would pay 2.5 percent to 5.25
percent a year, Argentina said.
Bondholders would also receive an immediate cash payment
similar to what it provided under the 2010 debt swap, Argentina
said. And they would receive derivative instruments that provide
payments when the country's gross domestic product exceeds 3
percent a year.
The par option, though, is restricted to small investors,
unlike the discount option, the more applicable fit for big
investors like NML and Aurelius.
Under the discount proposal, holdouts could receive new
discount bonds due in 2033 that pay 8.28 percent annually.
Argentina said the holdouts would also receive past due interest
since 2003 in the form of bonds due in 2017 paying 8.75 percent
a year, and GDP-linked derivative units.
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."
It was unclear on Saturday how the court might view
Argentina's proposals. The same three-judge panel had said in
October, though, that the holdouts "were completely within their
rights" to rejected prior debt swap offers.
Euginio Bruno, a lawyer and bond restructuring expert with
the law firm Estudio Garrido Abogados in Buenos Aires, said the
government's Friday proposal "was within expectations,
considering the legal constraints on offering anything better
than the terms of the 2010 restructuring."
Argentina has a "lock law" that keeps governments from
improving the terms of previous restructurings.
Earlier in the 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
Argentina and holders of its restructured bonds say that
granting the holdouts 100 cents on the dollar could complicate
future sovereign restructurings around the world.
Argentine Vice President Amado Boudou repeated on Saturday
that Argentina would continue repaying investors who
participated in the restructuring no matter how the U.S. court
case is resolved.
"One way or another, Argentina will pay," he said.
The case is NML Capital Ltd et al v. Republic of Argentina,
2nd U.S. Circuit Court of Appeals, No. 12-105.