The Lessons of Our Bond War After years of avoiding its obligations, Argentina made a deal with my firm and others that sends a good message on lending. Paul Singer
http://www.wsj.com/articles/the-lessons-of-our-bond-war-1461531781
On April 22, a unique chapter in the history of the international bond market drew to a close when the Republic of Argentina settled with the largest remaining holders of the bonds unresolved from its 2001 default on more than $80 billion. Elliott Management, the firm I founded and manage, was one of these holders, having purchased bonds both before and after the default.
The 15-year saga has generated reams of articles about what lessons should be drawn to improve the sovereign-debt restructuring process. Now that the Argentina story is winding down, we would like to add our perspective to the debate.
When we first invested in these bonds in 2001, we believed that a negotiated restructuring could help Argentina avoid default. We also believed that if we participated in a negotiation, we could help achieve a good deal for all of the country’s bondholders.
As it turned out, Argentina chose to default, and its leaders refused to negotiate. Normally, sovereign restructurings are completed quickly—a 2013 study by the Moody’s rating agency put the average at around 10 months. But it was nearly three years before Argentina’s leaders even put an offer on the table.
When they finally did, bondholders—including many individual Argentines—were given a take-it-or-leave-it offer of new bonds worth just 30 cents for every dollar owed on the old bonds. Argentina’s leaders even took the extraordinary step of passing a law prohibiting payment to any bondholder that rejected the offer.
Despite these coercive tactics, more than half of Argentina’s foreign bondholders rejected Argentina’s unilateral terms. Five years later, in 2010, Argentina repeated the 30-cent offer. Many participants in this second exchange were bondholders who were worn down by the financial crisis or just tired of waiting.
At that point, Argentina’s leaders could have easily negotiated a settlement with the remaining bondholders and put the 2001 default behind them. We tried again, as we had in the past, to initiate a settlement discussion with Argentina.
Our entreaties were again refused. Instead, Argentina’s leaders chose to use us as scapegoats for the country’s mounting economic problems, insisting that bondholders like us would never be paid a single peso. CONTINUE AT SITE
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