AN ANALYSIS OF ARGENTINA'S 2001 DEFAULT RESOLUTION - CIGI PAPERS NO. 110 - OCTOBER 2016 - Centre for ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
CIGI PAPERS NO. 110 — OCTOBER 2016 AN ANALYSIS OF ARGENTINA’S 2001 DEFAULT RESOLUTION MARTIN GUZMAN
AN ANALYSIS OF ARGENTINA’S 2001 DEFAULT RESOLUTION
Martin GuzmanCopyright © 2016 by the Centre for International Governance Innovation The opinions expressed in this publication are those of the author and do not necessarily reflect the views of the Centre for International Governance Innovation or its Board of Directors. This work is licensed under a Creative Commons Attribution — Non-commercial — No Derivatives License. To view this license, visit (www.creativecommons.org/ licenses/by-nc-nd/3.0/). For re-use or distribution, please include this copyright notice. Centre for International Governance Innovation, CIGI and the CIGI globe are registered trademarks. 67 Erb Street West Waterloo, Ontario N2L 6C2 Canada tel +1 519 885 2444 fax +1 519 885 5450 www.cigionline.org
TABLE OF CONTENTS iv About the Global Economy Program iv About the Author 1 Acronyms 1 Executive Summary 1 Introduction 3 The Path to the 2001 Default Crisis 4 Macroeconomic Performance in the Post-default Era 4 The First Two Rounds of Restructuring: 2005 and 2010 11 The Legal Disputes 15 Implications for Sovereign Lending Markets 17 Conclusions 19 Appendix 21 Works Cited 24 About CIGI 24 CIGI Masthead
CIGI Papers no. 110 — October 2016
ABOUT THE GLOBAL ECONOMY ABOUT THE AUTHOR
PROGRAM
Addressing limitations in the ways nations tackle
shared economic challenges, the Global Economy
Program at CIGI strives to inform and guide
policy debates through world-leading research
and sustained stakeholder engagement.
With experts from academia, national agencies,
international institutions and the private sector, the
Global Economy Program supports research in the
following areas: management of severe sovereign
debt crises; central banking and international
financial regulation; China’s role in the global Martin Guzman is a senior fellow at the Centre for
economy; governance and policies of the Bretton International Governance Innovation, a research
Woods institutions; the Group of Twenty; global, associate at Columbia University Business
plurilateral and regional trade agreements; and School and associate professor at the University
financing sustainable development. Each year, of Buenos Aires. He is also a member of the
the Global Economy Program hosts, co-hosts Institute for New Economic Thinking Taskforce on
and participates in many events worldwide, Macroeconomic Inefficiencies and Instabilities. He
working with trusted international partners, co-chairs the Columbia University Initiative for
which allows the program to disseminate policy Policy Dialogue Taskforce on Debt Restructuring
recommendations to an international audience of and Sovereign Bankruptcy.
policy makers.
Through its research, collaboration and
publications, the Global Economy Program
informs decision makers, fosters dialogue and
debate on policy-relevant ideas and strengthens
multilateral responses to the most pressing
international governance issues.
iv • CENTRE FOR INTERNATIONAL GOVERNANCE INNOVATIONAn Analysis of Argentina’s 2001 Default Resolution
ACRONYMS full would have implied further fiscal adjustments that
would have depressed the economy even more — and
CACs collective action clauses that, in any case, would have made full debt repayment
eventually unfeasible. The Argentinian society did not
CPI consumer price index tolerate it. Amidst massive social protests and clashes
between demonstrators and the police, the elected
DC Determination Committee
president resigned. Full repayment was not politically or
EMBI+ Emerging Market Bond Index Plus economically feasible — a fact that had been recognized
by creditors who had been demanding large interest rate
FRAN floating rate accrual note premiums.
ICMA International Capital Market Association The restructuring process that followed was possibly the
most complex and most commented on in the history
IMF International Monetary Fund of sovereign defaults. It raised several controversies,
with an impressive variety of opinions on the meanings
ISDA International Swaps and Derivatives
of this case, ranging from early claims from influential
Association
academics stating that Argentina’s case suggests that
RUFO rights upon future offers “rogue debtors, rather than rogue creditors, are the
ones that pose the greatest threat to the integrity and
SCDS sovereign credit default swaps efficiency of the international financial architecture”
(Porzecanski 2005, 331), to “[Argentina’s restructuring
UNCTAD United Nations Conference on Trade and is] in most dimensions a textbook example of how to do
Development an exchange” (Sturzenegger and Zettelmeyer 2005, 10).
Much has happened since those early assertions: opinions
EXECUTIVE SUMMARY evolved, but disagreements still persist on various fronts.
This paper provides a comprehensive analysis of the crisis
Argentina’s 2001 default was followed by a complex debt
resolution and attempts to shed light on some important
restructuring that included a long legal dispute with so-
controversies that this process triggered. This is not an
called “vulture funds” and other holdout creditors. The full
isolated debt restructuring episode. Instead, it is a case that
resolution of the sovereign default took almost 15 years.
raises general questions for the functioning of sovereign
This paper examines the whole restructuring process. It
lending markets. The analysis of its intricacies matters for
describes the strategies followed by the debtor and the
understanding key features of sovereign lending markets,
bondholders, the domestic economic implications of the
from the consequences of the lack of adequate frameworks
restructuring and the characteristics of the legal disputes.
for restructuring sovereign debt, to the implications of the
It also analyzes the implications of the default resolution
victory obtained by a group of so-called vulture funds.
for the functioning of sovereign lending markets.
Argentina followed an unusual restructuring strategy:
INTRODUCTION unlike many debtor countries, the country pursued a high
initial debt relief that led to a sustained recovery of debt
In December 2001, Argentina defaulted on its debt. The
sustainability, which, in turn, was a key condition for the
decision occurred in the context of a massive social and
spectacular recovery that followed. And the restructuring
economic crisis that had been preceded by a decade-long
also featured GDP-linked warrants, such that if the country
experiment that included major reforms aligned with the
grew more, bondholders would receive more. This strategy
tenets of the Washington Consensus. The reforms came
was highly resisted by creditors, and not appreciated by
with promises of significant increases in the country’s
the US courts.
wealth — but that did not happen. By the time of the
default, Argentina’s GDP was falling abruptly — the drop By 2010, the country had settled with 92.4 percent of its
since the beginning of a recession in 1998 until the default bondholders. Among the holdouts was a group of New
was 15.7 percent (and from 1998 to 2002 the cumulative York-based hedge funds that specialize in buying
decline was –19.9 percent). The unemployment rate rose distressed debt and exploiting gaps in the legal financial
to 21.5 percent and the poverty rate reached a historical architecture — the vulture funds. They bought Argentine
peak of above 45 percent.1 Continuing to service debt in defaulted bonds, litigated in New York courts (the
jurisdiction under which much of Argentine defaulted
1 According to calculations of the Center for Distributive, Labor and debt had been issued) claiming full payment, and won.
Social Studies, the US$4 a day urban poverty rate for individuals The ruling triggered a massive debate among academics,
reached a peak of 45.5 percent in 2002 (see http://sedlac.econo. practitioners and policy makers — as well as enormous
unlp.edu.ar/eng/statistics.php). According to Argentina’s National
Institute of Statistics, the urban poverty rate for individuals reached a
controversies on the nature of the activities of these hedge
peak of 57.4 percent in 2002 (see www.indec.gov.ar/el-indec_eng.asp). funds.
Martin Guzman • 1CIGI Papers no. 110 — October 2016
The ruling also featured a powerful injunction that International Capital Market Association (ICMA) and
prohibited the country from repaying the restructured the US Treasury all got involved in the debate on how to
bondholders until it paid the holdouts in full, and also improve the frameworks for sovereign debt restructuring.
stipulated that it would penalize any institution that ICMA, with the support of the IMF, suggested new
helped Argentina to repay those creditors — no matter language for debt contracts that would make the vulture
where in the world those institutions were operating. funds’ business more difficult to carry on — in particular,
ICMA suggested a formula for aggregation of collective
The vulture funds had bought the large majority of the action clauses (CACs) that would make it easier to bind
bonds after the country defaulted, at prices that went as minorities, and a clarification of the pari passu clause. At
low as 10 cents on the dollar.2 And a large proportion of the the same time, the United Nations launched a process for
bonds were purchased after the first round of restructuring, creating a multinational formal framework for sovereign
mostly in 2008. The litigants claimed for full principal, full debt restructuring that resulted in the approval of a set
interest (which, in one particular series, was indexed to the of principles. These principles received the support of an
country’s risk premium, and in all cases was high enough overwhelming majority of countries, with six countries
to contemplate the risk of default at the time the bonds had voting against them — countries that are very important
been issued), and even the pre-judgment compensatory in the international financial landscape: the United States,
annual interest rate of nine percent for no repayment in the United Kingdom, Canada, Germany, Japan and Israel.
due date. The victory they obtained in the US courts ended
up delivering exorbitant returns. The case also received much attention from academia
— not just in the form of scholarly papers, but also in
The resulting large intercreditor inequities raised concerns the form of academic blogging, an area where much of
in the international community. Different influential the most interesting writing took place. The number of
actors approached the problem from different angles — commentaries is so large that a survey will surely miss
in all cases trying to resolve the potential severe moral important contributions. Some of the most valuable
hazard problem that this resolution could entail. The large contributions from the legal side can be found in various
disparity in returns between the exchange bondholders and commentaries by Anna Gelpern3 and Mark Weidemaier.4
the holdouts incentivizes holdout behaviour — in the legal Juan Jose Cruces and Tim Samples (forthcoming 2016) is,
disputes between Argentina and the holdout bondholders, to the author’s knowledge, the most complete analysis of
those who did not participate in the restructuring and did the elements of the litigation with the holdouts. Several
not litigate either (a group that received the denomination important elements of the restructuring process have also
of “me too”), received the same terms as the ones set been analyzed in Amrita Dhillon et al. (2005), Marcus
by the US courts’ rulings in favour of vulture funds, as Miller and Dania Thomas (2007), Federico Sturzenegger
Judge Thomas P. Griesa from the New York Southern and Jeromin Zettelmeyer (2005) and Eduardo Basualdo et
District Court made the ruling extensive to the former al. (2015). Martin Guzman and Joseph Stiglitz have also
group; therefore, the case reinforces the expectation that provided extensive commentary on the evolution of the
in a restructuring process, it would be enough to hold out, saga and its economic implications.5
let a vulture fund litigate and then wait to get the same
treatment the litigant would get. But if many follow the This paper offers a comprehensive description and
same strategy, it would be impossible for the distressed analysis of the whole restructuring process. It focuses on
debtor to finalize a restructuring — hence, countries could the economic consequences and meaning of the different
not restore debt sustainability or, more generally, set the actions, elements and events that were involved in the
conditions for economic recovery. process, but the paper does not intend to delve deeply into
a set of complex legal issues that received much attention
Following the vulture funds’ victory, the International as the saga was evolving.6
Monetary Fund (IMF), the United Nations, the
The rest of the paper is organized as follows. The second
section briefly describes the events that led to the default
2 For instance, NML Capital paid 10 cents on the dollar for its purchases
of the series “Global Bonds, U.S. dollar 11.375% due 2017” made on
December 5, 2008; 11 cents on the dollar for the purchases of the same
series made on January 2, 2009; 10.5 cents on the dollar for purchases 3 See www.creditslips.org/creditslips/GelpernAuthor.html.
of the series “Global Bonds, U.S. dollar 12.25% due 2018” made on
December 10, 2008; 17.5 cents on the dollar for purchases of the same 4 See www.creditslips.org/creditslips/WeidemaierAuthor.html.
series made on November 5 and 11 of the same year; 35.5 cents on
the dollar for purchases of the FRAN (floating rate accrual note) 5 See www.project-syndicate.org/columnist/martin-guzman.
series on October 16, 2008 (series that was due in 2005, and for which
they got paid an interest rate that included country risk — risk that, 6 For an analysis of those issues, see, for example, the cited
according to the purchase date, NML never had to bear). There are commentaries by Gelpern and Weidermaier, as well as Buchheit,
many examples like these. Gulati and Tirado (2013), Buchheit and Pam (2004), Olivares-Caminal
(2009), Weidemaier, Scott and Gulati (2013) and Chodos (2016),
among many others.
2 • CENTRE FOR INTERNATIONAL GOVERNANCE INNOVATIONAn Analysis of Argentina’s 2001 Default Resolution
in 2001. This section offers a simplified analysis of the IMF annual conference to talk about the Argentine miracle:
economic dynamics that the country experienced in Argentina had become the poster child of the IMF.
the decade before the default, together with a set of
references for readers who are interested in a deeper But the country did not become richer. Trade liberalization
analysis. Understanding the dynamics before the default led to massive exclusion of the unskilled labour force,
is important because it shows that the debt problems which could not be absorbed by the sector with the static
arose not only as the consequence of a lack of discipline comparative advantage (the agricultural sector), in a
or over-optimism on the borrower’s side, but also from context of increasing deindustrialization. The losers of
the creditors’ willingness to lend following a set of these trade policies were not compensated. There were
reforms that the country carried out in the early 1990s. large increases in unemployment and labour informality.
The third section describes Argentina’s macroeconomic Financial liberalization made the system more unstable,
performance in the years that followed the default, and not more efficient. In several cases, the privatization of
analyzes the relationship between that performance and public enterprises was not associated with efficiency gains.
the restructuring. The fourth section analyzes the elements Overall, the increases in productivity that would sustain
of Argentina’s offers of 2005 and 2010. The legal disputes the higher levels of consumption while at the same time
in US courts are described in the fifth section. The sixth providing the resources for full debt repayment, did not
section analyzes the implications of the resolution of the materialize.
event for the functioning of sovereign lending markets.
In 1998, a recession started. In 1999, a new government
The seventh section concludes the paper.
was elected, but the economic strategy remained the
same. Debt overhang led to a large waste of resources.
THE PATH TO THE 2001 DEFAULT CRISIS Unemployment, poverty and subutilization of capital
The default of 2001 was the end of an economic experiment soared.9 The government tried to defend the exchange
that was a spectacular failure. The experiment started in rate parity time and again. In a demand-constrained
1990. The previous decade had featured another massive regime with the inability to run an expansionary monetary
coordination failure of the economic system that resulted policy, the government engaged in experiments of fiscal
in long periods of high inflation and short but destructive austerity, under the “advice” and pressure of the IMF.10
bursts of hyperinflation. A government elected in 1989 led The recession got worse, and turned into a depression. By
a process of major economic reforms, characterized by the the end of 2001, in a desperate attempt to stop a capital
tenets of the Washington Consensus (as trade and financial flight, the finance minister decided to freeze bank deposits
liberalization, and privatization of public enterprises), as (the so-called corralito). The middle class did not tolerate
well as the implementation of a convertibility system that it, and the government fell: President Fernando De la Rúa
tied the domestic currency to the US dollar. resigned in the midst of extreme social tensions. In the 10
days that followed, the country witnessed the succession
The reforms were supposed to deliver significant increases of five different presidents. On the last day of 2001, the
in productivity, according to their advocates. As a response, country defaulted on $81.3 billion11 of sovereign debt with
both the public sector and the private sector increased private creditors (the largest sovereign debt default up
the levels of spending, which, in turn, led to a process of to that point) and abandoned the convertibility system.
indebtedness. This was a two-sided game: international This marked the beginning of a new economic regime
creditors also believed in the virtues of the new system, — and also the beginning of a complex process of debt
and were initially willing to lend at low interest rates.7 restructuring.12
In 1995, the Tequila crisis (as the currency crisis in Mexico Assuming the country could have issued more debt at what
was called) proved to be a challenge for the Argentine rigid was at the time a conservative interest rate of 12.5 percent
monetary system, but the country managed to deal with its per year, the annual cost of servicing the debt to private
effects. This reinforced the belief in the system’s capacity creditors would have been $10 billion. Adding the service
to absorb shocks, and increased the costs of abandoning on preferred debt, the cost would have passed $12 billion.
it in the near future.8 After this burst of instability, GDP
continued to grow over the next two years. In 1998, the
president of Argentina, Carlos Menem, was invited to the 9 Capacity utilization fell below 50 percent in the first quarter of 2002,
according to data from Argentina’s Ministry of Economy.
10 Later, the IMF made a mea culpa of its role in Argentina’s crisis,
recognizing, to some extent, that its approach was flawed (IMF 2004).
7 The spread on Argentina’s debt decreased until 1995, when it fell
below 83 EMBI+ (Emerging Market Bond Index Plus) basis points, 11 All figures are in US dollars.
and it increased since then until past the default of 2001.
12 See Galiani, Heymann and Tommasi (2003), and Frenkel (2002) for
8 See Fanelli and Heymann (2002) for a more extensive analysis of this a more comprehensive analysis of the macroeconomic dynamics
issue. during the period of the convertibility system.
Martin Guzman • 3CIGI Papers no. 110 — October 2016
This was almost 10 percent of GDP after the devaluation. A rounds of the process of debt restructuring, respectively,
primary surplus of this size was clearly unfeasible by any and the government led by Mauricio Macri was in charge
standards. Forcing full repayment under those conditions of the last round.
would have depressed the economy further, placing it in an
austerity trap. At the time, the country had no alternative The default affected 150 different bonds, denominated in
but to default. six different currencies, and issued under eight different
legal jurisdictions. Holders of the defaulted debt included
MACROECONOMIC PERFORMANCE IN retail investors from all over the world, investment banks
and vulture funds that had bought Argentine bonds in
THE POST-DEFAULT ERA secondary markets both before and after the default. And
Debt sustainability is a necessary condition for economic none of the defaulted bonds had CACs.
recovery. Forcing repayment under an unsustainable debt
path only makes matters worse — for the debtor, and for The Dubai Offer
the creditors that are not “first in line” to get repaid, as The first official exchange offer — the “Dubai offer,” as it
a deterioration of the economic prospects of the debtor was presented in the IMF-World Bank Annual Meeting
decreases the probability of repayment in the future. in Dubai — was done in 2003. The top priority for the
Argentina faced this harsh reality until the default. Fiscal design of the offer was to ensure the continuation of the
austerity policies in a recessionary situation and the delay recovery of debt sustainability. Argentina promised to run
in 2001 in recognizing an unsustainable debt path only a primary surplus of three percent of GDP beginning in
aggravated the recession, turning it into a depression. And 2004. In the proposed scheme, debt could only be served
after the default, the country was able to use the primary using the primary surplus — but not issuing new debt.
surplus to run macroeconomic policies that were essential Finally, preferred creditors would be paid in full. This
for the recovery. Later on, a restructuring that provided would leave a residual of one percent of GDP to repay
large debt relief would sustain the favourable conditions. private creditors, implying a writedown of 73 percent on
But debt relief alone is generally not a sufficient condition the eligible debt of $81.84 billion at a post-crisis interest
for recovery. The path to recovery usually requires a rate of five percent, and no recognition of due interest.13
change from a structure of production that failed to a more The country would issue three exchange bonds: a discount
dynamic one that can address the economic deficiencies of bond with 75 percent discount on the principal and an
the former. Argentina went through this phase. After the increasing interest rate in the range of one to five percent,
devaluation, the country followed a policy of competitive and a maturity of eight to 32 years; a par bond with no
real exchange rates (together with commodity export discount on the principal, a fixed interest rate in the range
taxes to capture the windfall of profits in that sector), in a of 0.5 to 1.5 percent, and a maturity of 20 to 42 years; and a
context of favourable external conditions. The combination quasi-par bond with a 30 percent discount on the principal,
of debt relief, competitive and effectively multiple real a fixed interest rate in the range of one to two percent, and
exchange rates, and a benign external environment a maturity of eight to 32 years. Creditors rejected the offer.
led to a spectacular economic recovery. In a demand-
constrained regime, Keynesian policies worked; at the
The Buenos Aires Offer
same time, the new relative prices led to a large creation The next round was the “Buenos Aires offer,” proposed
of jobs that absorbed many of the workers who had been in January 2005. The offer again included a par bond
excluded from labour markets in the previous decade. with no writedown of principal, a maturity of 35 years
Unemployment decreased from 21.5 percent the year of and a reduced annual interest rate of 1.33 percent over
the default to 7.9 percent in 2008. Real GDP grew above the first five years, which would then increase over time
eight percent per year on average from 2003 to 2008 (the up to 5.25 percent; a discount bond with a writedown
year in which the global financial crisis started). Later on, of 66.3 percent on the principal, a maturity of 30 years
these high rates of economic growth could not be sustained and an annual interest rate of 8.25 percent; and a quasi-
— although that is a story that is not related to the process par bond for local bondholders, issued in Argentine
of sovereign debt restructuring, but to the combination pesos adjusted by a proxy of consumer price index (CPI)
of macroeconomic mismanagement and a deterioration inflation, with a maturity of 42 years and a fixed annual
of the external conditions, at least since 2011 (see Damill, interest rate of 3.31 percent. In addition, attached to each
Frenkel and Rapetti, 2015; Guzman and Stiglitz 2016b). bond there was a strip of GDP-linked warrants, whose
characteristics will be described below. As part of the deal,
THE FIRST TWO ROUNDS OF the Argentine government would promise to achieve an
RESTRUCTURING: 2005 AND 2010 annual primary surplus of 2.7 percent of GDP from the
The governments led by husband and wife Néstor Kirchner
13 See Miller and Thomas (2007) for a more extensive discussion of the
and Cristina Fernández were in charge of the first two
offer.
4 • CENTRE FOR INTERNATIONAL GOVERNANCE INNOVATIONAn Analysis of Argentina’s 2001 Default Resolution
moment of the swap. This would stabilize public debt in The Second Swap
real terms, ensuring that the ratio of debt over GDP would
fall with real economic growth and the appreciation of the The relatively low rate of participation required more
real exchange rate. In 2004, the IMF had proposed a more rounds of restructuring if the country wanted to return
ambitious commitment of 4.5 percent of primary surplus, to the international credit markets. The restructuring
but the Argentine government rejected it on the basis was reopened in 2010. In 2005, the country had enacted
that it would undermine the economic recovery and debt a law that prohibited the government from making any
sustainability.14 payments to holdout bondholders (the “Lock Law,” which
will be analyzed below). This law was suspended to
The exchange bonds included CACs, but only at the level reopen the swap.
of each series and with no aggregation formula as the one
suggested by ICMA in 2014 (see ICMA 2014 or Gelpern, The eligible debt for the offer made in April 2010 was
Heller and Setser 2016 for details on the new CACs). $18.3 billion, including due interest. The offer included
three types of bonds: as in the previous round, both a
The participation rate was 76.15 percent, equivalent to an par bond and a discount bond; and, in addition, a global
exchange of $62.32 billion out of the $81.84 billion of old bond issued in US dollars with an annual interest rate
bonds (that included due interest until December 31, 2001) of 8.75 percent and due in 2017. Each type of bond was
for exchange bonds under the described new terms. Due issued in different series under different currencies and
interest between December 31, 2001 and December 31, jurisdictions. The country again issued GDP-linked
2003, equivalent to $20.72 billion, was not recognized. warrants with the same characteristics as the ones issued
in 2005.
Full Repayment to the IMF
The par bond had no discount but a low interest rate
By the end of 2005, the country announced it would pay, (2.5 percent for series in US dollars both under New York
before the due date, the entire stock of debt borrowed from or Argentine law, 2.26 percent for the series in euros,
the IMF ($9.8 billion paid with foreign reserves on January 0.45 percent for the series in yen and 1.18 percent for the
3, 2006). This act was part of a strategy of de-indebtedness series in pesos). The due date was the year 2038 in all
and increase of autonomy with respect to the IMF. cases. The due date of the discount bond was set to the
year 2033, and the interest rate was 8.28 percent for the
In previous years, during the first phases of the series in US dollars (both under New York and Argentine
restructuring deliberations, negotiations between law), 7.82 percent for the series in euros, 4.33 percent for
Argentina’s government and the IMF had been important the series in yen and 5.83 percent for the series in pesos
to shaping the debt exchange proposal. The IMF had (adjusted by CPI inflation).
objected to different terms of the proposal, but the final
terms were close to the ones originally proposed by The participation reached $13.1 billion of old debt that
Argentina’s government (terms that will be described was exchanged for $2.1 billion in par bonds, $4.8 billion
below). The context in which the interactions between in discount bonds and $957 million in the global 2017
the country and the IMF occurred put the institution bond. These figures implied a face value writedown of
in a position of relative vulnerability, due to the US 40 percent and a participation of 70.74 percent over the
government’s position, it was unlikely to see increases in remaining eligible debt, increasing the total participation
funding to the IMF from the United States, and the IMF to 92.4 percent.
was largely exposed to Argentina, which was the one of
its largest debtors.15 The cancellation of Argentina’s debt GDP-linked Warrants
to the IMF interrupted the relations between the country
and the Fund. Argentina had to make payments on GDP-linked securities
in respect of any given reference year, if the following three
conditions were met:
• For the reference year, actual real GDP exceeded base
14 See Cooper and Momani (2005) for further details. case GDP.
15 By October 2003, Argentina’s debt to the IMF was $16 billion, about • For the reference year, annual growth in actual real
15 percent of the IMF total credit (Wolf 2004, cited in Heillener 2005). GDP exceeded the growth rate in base case GDP.16
Eric Helleiner (2005) offers a detailed analysis of the characteristics of
the negotiations between Argentina and the IMF with an emphasis
on the role played by the Bush administration. Andrew F. Cooper
and Bessma Momani (2005) also analyze the details of the patterns
that characterized these negotiations, describing Argentina’s tactics 16 Base case GDP growth was set to 4.26 percent for 2005, 3.55 percent
for exploiting the dual role that the IMF had to play, both as a creditor for 2006, 3.42 percent for 2007, 3.3 percent for 2008, 3.29 percent for
that intended to maintain its super-senior status and as an implicit 2009, 3.26 percent from 2010 to 2012, 3.22 percent for 2013, 3.03 for
coordinator of the relationship between the country and its creditors. 2014 and 3 percent from 2015 to 2034.
Martin Guzman • 5CIGI Papers no. 110 — October 2016
Figure 1: Prices of GDP-linked Warrants in ARG$ Figure 4: Prices of GDP-linked Warrants in Euros
(English Law)
20
18 100
16 90
14
80
12
70
Price
10
60
8
Price
50
6
4 40
2 30
0 20
2005-IV
2006-I
2006-II
2006-III
2006-IV
2007-I
2007-II
2007-III
2007-IV
2008-I
2008-II
2008-III
2008-IV
2009-I
2009-II
2009-III
2009-IV
2010-I
2010-II
2010-III
2010-IV
2011-I
2011-II
2011-III
2011-IV
10
0
2009-II 2010-I 2010-IV 2011-II 2011-III 2011-IV
Source: Author.
Source: Author.
Figure 2: Prices of GDP-linked Warrants in US$
(Argentine Law) Figure 5: Prices of GDP-linked Warrants in Yen
(Japanese Law)
90
12
80
70 10
60
50 8
Price
40
Price
6
30
20
4
10
0 2
2005-IV
2006-I
2006-II
2006-III
2006-IV
2007-I
2007-II
2007-III
2007-IV
2008-I
2008-II
2008-III
2008-IV
2009-I
2009-II
2009-III
2009-IV
2010-I
2010-II
2010-III
2010-IV
2011-I
2011-II
2011-III
0
2010-III 2010-III 2010-IV 2011-I 2011-II 2011-II 2011-III
Source: Author.
Source: Author.
Figure 3: Prices of GDP-linked Warrants in US$
(New York Law) • Total payments made on a GDP-linked security did
not exceed the payment cap for that GDP-linked
90
security (the payment cap was set to 0.48 per unit of
80 currency).
70
60 The payment on each unit was set to five percent of the
50 difference between the actual real GDP and the base case
Price
40
GDP for each reference year. Payments had to be calculated
30
each year on November 1 following the relevant reference
year, beginning on November 1, 2006. The reference year
20
was a calendar year, starting in 2005 and ending in 2034.
10
It is shown above that the performance of these securities
0
led to large differences between the ex ante and ex post
2005-IV
2006-I
2006-II
2006-III
2006-IV
2007-I
2007-II
2007-III
2007-IV
2008-II
2008-III
2008-IV
2009-II
2009-III
2009-IV
2010-I
2010-II
2010-III
2010-IV
2011-I
2011-II
2011-III
2011-IV
writedowns and haircuts. However, these bonds were
initially not well received by market participants, as the
Source: Author. low initial market prices suggest. Figures 1 to 5 show
the evolution of the GDP-linked warrants prices (daily
closing prices data from Bloomberg Generic Prices) for the
different series. In all cases, prices went through significant
increases over time from initially low values (with the
6 • CENTRE FOR INTERNATIONAL GOVERNANCE INNOVATIONAn Analysis of Argentina’s 2001 Default Resolution
exception of the period in which the global financial crisis Figure 6: Argentina’s Actual Real GDP Growth and
erupted, when prices fell, but recovered again afterwards). Base Case GDP Growth
Reaching a settlement during times of recession may 10
9
be difficult, especially when creditors are optimistic 8
about the recovery prospects of the debtor, as the debt 7
6
discount that would permit ensuring sustainability with
5
high probability will probably be “large.” If there is no 4
settlement that is acceptable for both parties, generally 3
2
the restructuring will be delayed (Dhillon et al. 2006; 1
Ghosal, Miller and Thampanishvong 2016). The Argentine 0
government considered the GDP-linked warrants (earlier
advocated in the literature by, for example, Shiller 2003,
Borensztein et al. 2004, and more recently by Blanchard,
Base Case GDP growth Actual Real GDP growth
Mauro and Acalin 2016), as a way around this problem.
Source: Author.
But as the data on prices shows, there was little enthusiasm
on the creditors’ side for these instruments. In the final Figure 7: GDP-linked Warrants Total Payments
settlement, they accounted for only 10 percent of the initial (in millions of US$)
value of the swap.
4000
However, these warrants paid off handsomely. Figure 6
3500
compares the base case GDP growth with actual real GDP
growth. As noted above, on average, real GDP grew above 3000
eight percent from 2003 to 2008. Real GDP growth fell
2500
below the base case in 2008 after the global financial crises
erupted, but passed the base case threshold again in 2010. 2000
It fell below the threshold again in 2012 (and currently 1500
remains in that state until the present).
1000
Applying the data of Figure 6 to the GDP-linked warrants 500
formula, we obtain that the country made additional
payments in reference year 2005 to reference year 2011 0
2006 2007 2008 2009 2011 2012
of almost $10 billion. Figure 7 shows the evolution of
payments over time. Figure 8 shows the disaggregated Source: Author.
payments for bonds denominated in US dollars (both
Figure 8: GDP-linked Warrants Payments per Bond
under New York law and Argentine law), in euros (issued
Series (in millions of US$)
under English law), in Argentine pesos (issued under
Argentine law) and in yen (issued under Japanese law). 4,000
All figures are converted to US dollars. 3,500
Debt Relief 3,000
Millions of USD
2,500
There is no obvious measure for evaluating the deepness 2,000
of a debt restructuring. The literature offers different
1,500
methods, all of them valuable but with important caveats.
One measure generally used is the haircut, which is a proxy 1,000
of creditors’ losses. The other commonly used measure is 500
the face value writedown, which is a proxy of the debtor’s 0
relief. Table 1 summarizes the measures described in this 2006 2007 2008 2009 2011 2012
section. U.S. Dollar (NY law) U.S. Dollar (Argentine law)
Euro (English law) Peso (Argentine law)
Yen (Japanese law)
Source: Author.
Martin Guzman • 7CIGI Papers no. 110 — October 2016
Creditors’ Losses surplus over GDP since the moment of the restructuring,
and full payment to preferred creditors.
The haircut is defined as
Cruces and Samples (forthcoming 2016) show that the
Present value of new debt (r ) ex post haircut significantly differed from these early
H=1 - computations when the payments on the GDP-linked
Present value of old debt (r )
warrants are included — and they show that the returns
where (r ) is the exit yield prevailing after the exchange. on these warrants were exceptionally large. They do the
This measure does not provide a measure of relief for the following illustrative exercise: suppose that in 2005, a
debtor, but an approximation of losses for the investors. holdout bondholder had a hypothetical portfolio of
However, this approach (introduced by Sturzenegger and what by 2010 were the seven most litigated bonds, and
Zettelmeyer 2008) is not exempt from problems. First, both exchanged in 2005 that portfolio for the same basket of
the old and the new debt are discounted at the same rate, bonds that the average restructured bondholder received
the exit yield after the debt exchange. If the restructuring in the first swap — a basket that included GDP-linked
is effective in recovering sustainability, the interest rate the warrants. By 2005, the value of that basket would have
day after the restructuring should be lower than the day been of 37 cents on the dollar. Suppose that the holdout
before, as the post-restructuring interest rate is unlikely bondholders reinvested all the coupons in the same
to capture the perceived probability of default before security year after year. In 2015, every holdout bondholder
the restructuring. Therefore, using the same yield for would have had a claim of $1.33 — that is, every holdout
computing the present value of the new and the old debt would have had 33 more cents than the original face
will probably overestimate the size of creditors’ losses, as value, even having accepted an initial deep discount.
it overestimates the value of the old debt. A more accurate Interestingly, investing $1 on June 2, 2005 (the day the first
measure of investor losses is the difference between the exchange was settled) in a US Treasury bond would have
present value of the new bond and the price paid for the resulted in a claim of $1.27 on the same date of 2015.
old bond, which will, in general, be different at different
times. Debtor’s Relief
Second, the measure does not capture the size of ex post Another way of measuring the size of the debt discount
losses when a restructuring includes contingent debt. is by computing the diminution in the face value after the
This issue is particularly important in the analysis of debt writedown. This provides an estimate of the relief
Argentina’s debt restructuring, as the exchange bonds for the debtor, but it does not capture the investors’ actual
included a coupon that was related to GDP growth. valuation of the bonds.
Cruces and Trebesch (2013) obtain that the value of the Of the total eligible debt for the exchange offer of 2005
haircut in Argentina’s exchanges was 73 percent. This and 2010 of $81.8 billion, $75.5 billion was exchanged for
haircut is relatively high when it is compared with other new debt with a face value $43.1 billion. This is an initial
episodes of sovereign debt restructuring.17 However, discount of 43 percent on the face value. Adding the $10
in many of the cases where the haircut was lower, there billion of payments on the GDP-linked warrants, the face
needed to be another restructuring shortly afterwards.18 value discount decreases to 30 percent. On top of this, if
Moreover, a judgment on whether the haircut was “too we add the approximately $12 billion payments to holdout
large” should not be done on the basis of an inter-country creditors according to the deal of 2016 (see the section “The
comparison, but on the basis of whether it was larger than Legal Disputes”), then the final debt writedown decreases
was necessary to achieve sustainability — taking into to 20.5 percent.
account that the ex post performance is endogenous on the
amount of debt relief. In this respect, the size of the haircut Interpretations on the Role of GDP-linked Warrants
on Argentina’s private creditors was consistent with the The interpretations of whether it was sensible from the
criterion for ensuring the recovery of sustainability, as the country’s viewpoint to issue GDP-linked warrants vary.
discount was compatible with a feasible target of primary Some point out that the exchange has actually been very
costly for Argentina in terms of the payments that were
ultimately made; hence, in this view, it was a mistake to
17 Cruces and Samples (forthcoming 2016) report that the average
issue GDP-linked warrants. For example, Sturzenegger
haircut for all sovereign debt restructurings from 1978 to 2010 was and Zettelmeyer (2005) conclude that given the low market
37 percent. valuation at the time of their introduction, it could prove
an expensive mistake to have included growth bonds in
18 Guzman (2016) shows that, since 1980, 51 percent of sovereign debt
restructurings with private bondholders were followed by another the swap. Although it is true that Argentina would have
restructuring or default within five years. Moreover, evidence shows benefitted from repurchasing those bonds when prices
that deeper debt relief is associated with better ex post performance
(Reinhart and Trebesch 2016).
8 • CENTRE FOR INTERNATIONAL GOVERNANCE INNOVATIONAn Analysis of Argentina’s 2001 Default Resolution
were still low, the issue has to be analyzed through a faith that would require that the debtor pays according to
different lens. its actual capacity — capacity that may evolve over time as
the result of the recovery that follows a positive process of
First, at the time of the issuance of the GDP-linked restructuring.
warrants, there was uncertainty about the evolution that
the country’s GDP would follow. It is not correct to judge However, Argentina’s case also shows that the novelty
an ex ante decision made under uncertainty in light of an ex risk associated with the issuance of this type of contingent
post performance. Second, from the country’s viewpoint, debt may be sizable, and expensive for the debtor. Even
what matters is not only the amount of payments, but though the value of the contingent instrument should
ensuring the continuation of the recovery of sustainability; be larger when uncertainty is greater, in Argentina’s
the distribution of payments over time is not necessarily case there seemed to be an aversion to the complexity of
less important than the present value of what is paid. On these instruments that resulted in low enthusiasm among
the other hand, from the creditors’ viewpoint, what matters creditors (complexity not in terms of the design of the bond,
most is not when payments are made, but the expected which was quite simple, but on the nature of the instrument
present value of payments. In this case, the country had in general). As analyzed in Olivier Blanchard, Paulo Mauro
a large relief when it was most needed (that is, at the time and Julien Acalin (2016), coordinated issuances by several
when there was a massive deficiency of aggregate demand countries at a larger scale could ameliorate this aversion.
that required expansionary macroeconomic policies), and
paid more when it was able to. Other Elements of the Debtor’s Strategy
Ultimately, the restructuring and its aftermath showed that The restructuring included a set of clauses and provisions
GDP-indexed bonds can, in practice, improve the trade-off that were intended to discourage holdout behaviour. Two
between the ex ante amount of debt relief that the debtor elements that became particularly important in the legal
requires to restore sustainability, and the principle of good
Table 1: Creditors’ Losses and Debt Relief
Concept Formula Value Pros Cons
Haircut 1 – present value new 0.73 Proxy of It does not reflect the
bonds/present value old (Cruces creditors’ losses debtor’s relief.
bonds and
Trebesch It uses the same discount
2013) factor for the old and
new debt, possibly
overestimating the value of
old debt.
Face value reduction, 2005 1 – face value of new debt/ 0.43 Proxy of debtor’s It does not reflect the value
and 2010 restructurings face value old debt relief of creditors’ losses.
It does not capture
payments on contingent
debt.
It does not contemplate
liabilities under litigation.
Face value reduction, final 1 – (face value of new debt 0.205 Proxy of debtor’s It does not reflect the value
+ GDP- linked warrants relief of creditors’ losses.
payments + payments to
holdouts)/face value old It includes It captures payments on
debt the value of GDP-linked warrants
payments on only until the period of
GDP-linked calculation.
warrants and
payments to
holdouts.
Source: Author
Martin Guzman • 9CIGI Papers no. 110 — October 2016
dispute with holdout bondholders were the Lock Law and Bondholder representatives said yesterday
the rights upon future offers (RUFO) clause. that investors entering the exchange now
could find themselves shut out from
Lock Law potentially more favourable terms settled
with bondholders at a later date.
The Lock Law prohibited reopening the exchange offer
to non-participating bondholders. Some argued that the [A] paragraph [of the Prospectus
Lock Law violates the pari passu clause because it amounts Supplement] states that “Argentina reserves
to a formal declaration that exchange bondholders may the right, in its absolute discretion, to
be paid while holdouts may not. But neither the district purchase, exchange, offer to purchase or
nor the circuit courts specifically refused to limit their exchange, or enter into a settlement in
definition of breach to the Lock Law. respect of any Eligible Securities that are not
exchanged pursuant to the Offer.”
The Lock Law was actually just an article of the more
comprehensive law that defined the terms of the The paragraph added:
restructuring. The evolution of the saga showed that
there was an important degree of flexibility regarding its “The terms of any such purchases,
application. In 2010, the article was suspended to reopen exchanges, offers or settlements could differ
the swap, and on September 2013 it was suspended again.19 from the terms of the Offer.”
This article was Argentina’s government response to The Financial Times article continues:
influential press claims that the exchange bonds prospectus
released when the country initiated the exchange offer of Critically, however, the wording in the
2005 was leaving open the possibility of a better settlement subsequent sentence omits the word
with holdouts. More specifically, it was the government’s “settlement.” Instead, it states: “Holders of
response to an article published by the Financial Times on New Securities will be entitled to participate
January 14, 2005, one day after the initiation of the “road in any voluntary purchase, exchange, offer
show” for the 2005 exchange offer. The article basically to purchase or exchange extended to or
suggested that Argentina could be manipulating the agreed with holders of Eligible Securities
language of the exchange bonds prospectus to facilitate a not exchanged pursuant to the Offer.”
later agreement with the holdout bondholders. It began by The FT has discovered that the same sentence
stating that: in an earlier version of the Prospectus
A detail in legal documents setting out Supplement, published in December last
Argentina’s offer to restructure $100bn of year as part of the presidential decree
defaulted sovereign debt could weaken the authorising the debt exchange, contains the
government’s marketing strategy. word “settlement.”
In the build-up to today’s opening of the And it concluded:
global debt-exchange offer, President Néstor The inevitable question will be why the
Kirchner’s government has consistently word “settlement” was omitted from the
promised that investors participating in the offer if there is no contemplation of settling
exchange will be entitled to any subsequent with hold-outs at higher values. (Thomsonin
improvements in the offer thanks to a “most 2005)
favoured creditor” clause.
In this context, the law was originally conceived as a
But later denounced that: marketing instrument that was not a repudiation of the
However, careful study of a paragraph in holdouts’ debt. Argentina’s Congress finally repealed it in
the Prospectus Supplement, one of the legal March 2016.
documents submitted to — and approved
The RUFO Clause
by — the US Securities and Exchange
Commission, suggests the government will The RUFO clause stated that if the country made a superior
be able to settle with individual bondholders voluntary offer to holdout bondholders before the end of
at a later date on better terms without the year 2014, it had to match the offer to the exchange
necessarily triggering the clause. bondholders. It was written as follows in Argentina’s
exchange bonds prospectus:
19 Article 2 of Law No. 26,017 (the article known as the Lock Law) was
suspended on September 23, 2015 by Law No. 26,886, article 7.
10 • CENTRE FOR INTERNATIONAL GOVERNANCE INNOVATIONAn Analysis of Argentina’s 2001 Default Resolution
Under the terms of the Pars, Discounts and in buying distressed debt at bargain prices and exploiting
Quasi-pars, if following the expiration of the the gaps in the legal architecture — a business that in
Offer until December 31, 2014, Argentina Argentina’s case resulted in enormous profits.
voluntarily makes an offer to purchase or
exchange or solicits consents to amend any This group of hedge funds included NML Capital (a
Eligible Securities not tendered or accepted subsidiary of Elliott Management), Aurelius Capital
pursuant to the Offer, Argentina has agreed Management, Dart Management, Blue Angel Capital,
that it will take all steps necessary so that Bracebridge Capital, Olifant Fund and Montreux Partners.
each holder of Pars, Discounts or Quasi- They all bought debt in distress at a fraction of its face value
pars will have the right, for a period of and litigated claiming full payment — defined as full face
at least 30 calendar days following the value plus full interest, plus a compensatory interest rate
announcement of such offer, to exchange for the lack of repayment in due date. The annual interest
any of such holder’s Pars, Discounts or rate already included a high risk premium: the range of
Quasi-pars for the consideration in cash or interest rates for the bonds-under litigation range from
in kind received in connection with such 9.75 percent (for the global bond in US dollars issued in
purchase or exchange offer or securities September 1997, due in 2030) to 12.375 percent (for the
having terms substantially the same as those global bond in US dollars issued in February 2001, due in
resulting from such amendment process, in 2012). In addition, one of the bond series (the FRAN series,
each case in accordance with the terms and issued in April 1998, due in 2005) that was purchased after
conditions of such purchases, exchange offer the default included a variable interest rate that was tied to
or amendment process.20 the country risk. After the default, country risk skyrocketed
(see Figure 9) and, as a result, the contracted annual interest
This clause turned out to be an important factor in the payments on that series increased to 101 percent before the
evolution of the saga after July 2014, which will be maturity of the bond.21
analyzed below.
Figure 9: Spread on Argentine Bonds (EMBI +)
THE LEGAL DISPUTES 8000
The restructuring featured long and complex legal 7000
disputes that started in 2002, three years before the first 6000
round of restructuring. During the first semester of 2016 5000
Basic points
these disputes were finalized. 4000
Pari Passu Clause 3000
2000
The pari passu is a standard clause in sovereign bonds that 1000
is supposed to ensure equitable treatment among equal 0
creditors, but whose meaning in the practice of sovereign Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05
lending markets is dubious. Mark Weidemaier, Robert Scott
Source: Author.
and Mitu Gulati (2013) put it succinctly: “In the context of
sovereign lending, then, it is fair to say that no one really This practice is not new. It had been followed in several
knows what the pari passu clause means.” The prospectus other distressed countries. One important antecedent was
of Argentina’s defaulted bonds included it as follows: the case of Peru, following the restructuring negotiations
“[t]he Securities will constitute...direct, unconditional, under the Brady Plan in 1996 — by then, the country
unsecured and unsubordinated obligations of the Republic had been in default for 12 years. In 1996, Elliott bought
and shall at all times rank pari passu without any preference Peruvian debt in default at a price of about half its face
among themselves. The payment obligations of the value. It litigated in New York Courts claiming full
Republic under the Securities shall at all times rank at least payment, but the New York Southern District Court ruled
equally with all its other present and future unsecured and in favour of Peru. By that time, Champerty law, which
unsubordinated External Indebtedness.” prohibited the purchase of debt in default with the intent
of suing the issuer, was still in place. Elliott appealed and
Vulture Funds won: in 1998, the Second Circuit ruled that Champerty
did not apply, interpreting the intent as contingent; in the
The restructuring process included the presence of
notorious Wall Street-based hedge funds that specialize
21 See www.srz.com/files/upload/Alerts/2nd_Circuit_Court_of_
Appeals_Decision.pdf. The FRAN was a bond with a ridiculous
20 See www.sec.gov/Archives/edgar data/914021/000095012305000302 economic design for the debtor, a form of anti-insurance, such that
/y04567e424b5.htm. Argentina would pay more in bad times and less in good times.
Martin Guzman • 11CIGI Papers no. 110 — October 2016
Second Circuit’s view, Elliott had bought the debt to get Other Holdouts
repaid in full, or otherwise to litigate. This interpretation of
Champerty constituted a game changer (see Blackman and The group of holdouts included not only vulture funds but
Mukhi 2010). also other bondholders that had bought the bonds before
the country entered into a period of distress. Table 2 shows
Such an interpretation of Champerty was unreasonable. the distribution of holdout bondholders in 2015, before the
How could the reasonable expectation be to get repaid last round of restructuring.
in full, when the country had already broken its promise
of full repayment and the litigant had bought the debt at The pari passu group refers to those who obtained the initial
about half of its face value? favourable ruling from Judge Griesa. Those are all vulture
funds. The “me too” group refers to the bondholders that
Finally, Champerty was repealed from New York legislation also had claims being disputed under New York courts and
in 2004, for purchases over $500,000. The justification was to whom Judge Griesa’s ruling in favour of NML Capital
that Champerty had already been an archaic law. The bill was extended. This group includes vulture funds and good
(Assembly Bill 7244-C) was presented by New York State faith creditors. The ICSID group refers to a group of Italian
Senator John Marchi. Vulture funds’ lobbying may have bondholders that had litigated under the International
influenced this legal change.22 Centre for Settlement of Investment Disputes (ICSID) —
which required treating sovereign debt as investment.
All the Argentine bonds under dispute had been issued
before Champerty was repealed. Therefore, the elimination Table 2: Distribution of Holdouts
of Champerty constituted de facto a change in property
rights that favoured vulture funds. Percentage of total
Holdout bondholder
defaulted debt
Changes in legislation and its interpretation have been
essential for the good health of the vulture funds’ business. Pari passu group 0.6
Figure 10, reproduced from Schumacher, Trebesch and “Me too” group 2.8
Enderlein (2014), shows that there has been a rapid and Litigants in other US courts 1
significant increase in litigation since the early 2000s,
Litigants in ICSID 1.3
around the time Champerty started to be interpreted
in a way that favoured the vultures’ case. The increase Litigants in other courts in 0.3
in litigation continues after Champerty’s subsequent Europe
elimination in 2004 — much of it corresponding to Unknown identity (no litigants) 1.6
Argentina’s case. Total 7.6
Figure 10: The Rise of Creditor Litigation Source: Argentina’s Ministry of Finance.
(Case Numbers and Amounts)
The disputes were resolved in different ways for the
70 4 different groups. The groups that received the most
60 3.5 favourable treatment were the ones that benefitted from
Volume (2005 USD bn)
Judge Griesa’s ruling. In 2016, Argentina paid at least
No. of Cases in Court
3
50
40
2.5 70 percent of the “acknowledged” claim to the group of
2
30
pari passu and “me too” — defined as the claim according
1.5
20
to the terms of Judge Griesa’s ruling. Different groups
1
10
ended up receiving different treatment as the original “pari
0.5
passu offer” was modified in subsequent negotiations. For
0 0
instance, NML received 75 percent of the acknowledged
1976
1978
1980
1982
1986
1988
1990
1992
1996
1998
2000
2002
2006
2008
2010
1984
1994
2004
claim plus compensation for legal fees (Argentina paid
No. Lawsuits Volume (real USD)
$325 million to vulture funds as compensation for all the
Source: Schumacher, Trebesch and Enderlein (2014). Reprinted with legal fees incurred during the trial). The other bondholders
permission.
ended up receiving 150 percent of the face value of the
original bonds (the “base offer”). Table 3 in the appendix
shows the payments to the different vulture funds and “me
too” that benefitted from Griesa’s ruling. The appendix
summarizes what Argentina would pay to the holdout
bondholders if all of those who received the base offer
22 There were documented connections between Paul Singer, head
of Elliott, and John Marchi — on March 25, 2004, Paul Singer
accepted it.
made a direct donation to “John Marchi and friends.” See
https://nyopengovernment.com/NYOG/search_summary.jsp?pag
e=camcon&page=camcon&var=paul+singer&d-49681-p=7.
12 • CENTRE FOR INTERNATIONAL GOVERNANCE INNOVATIONYou can also read
