The distressed debtor is the Republic of Argentina.
Ok .. . so not everyone gets to handle a case of this magnitude.
But, as for $8 billion in cash settlement payments and $100 billion in total defaults . . . it’s merely a matter of locating the decimal point in a different place than what most of us are used to seeing. Otherwise, Argentina is pretty much the same, I’d guess, as other cases, whether small or large.
Over the years, I’ve become fond of saying that there is no such thing as a “small” or a “large” case–the intensity of emotion and the desire to prevail are rarely changed by the amount of money at stake.
So, the question for our real-world cases is this: What can we learn from the Argentina mediation process?
Here’s what happened, according to public reports (some of which became available this past week).
Legal disputes have been raging for many years in the U.S. District Court for the Southern District of New York, stemming from Argentina’s 2002 default on debts of $100 billion. The Argentina cases don’t involve a bankruptcy proceeding, of course . . . but the cases amount, collectively, to something like a bankruptcy
On June 23, 2014, Judge Thomas P. Griesa, appoints Daniel A. Pollack, a New York trial attorney, as mediator (aka, the “Special Master to conduct and preside over settlement negotiations between and among the parties to this litigation”) in the Argentina cases..
Life for the Mediator doesn’t go smoothly. For example:
FIRST, ARGENTINA OPPOSES THE MEDIATOR’S INVOLVEMENT
–On August 4, 2014, Judge Griesa issues an Order to “confirm” that the Mediator “will remain in office,” despite an objection by Argentina’s attorney. The Court explains:
[T]he Special Master . . . has been doing all that he was required to do under his order of appointment with great skill. He has been even-handed in relationship to the parties. There has been no bias in any degree. It is hard to imagine any worse move that the court could make than to remove the Special Master. It would be a gross injustice and would drastically interfere with the process which has been going on and must continue.
–On June 1, 2015, Argentina’s attorney sends a letter to the Mediator containing the following language that is, let’s say, non-supportive:
[Y]ou ask us to provide the response of the Republic of Argentina to plaintiffs’ purported invitation to engage in negotiations. The Republic has informed us that, after careful consideration, it has concluded that engagement at this time is not possible, in light of . . . the Republic’s lack of confidence in a negotiation process under your supervision. Nor does the Republic believe that engagement will occur under the the current Special Master framework. . . . [T]he Republic has had no confidence in your supervision of any negotiation process.
THEN, VARIOUS CREDITORS ASK FOR THE MEDIATOR’S REMOVAL
–On March 11, 2016, counsel for certain plaintiffs request the Mediator’s removal, with the following allegations:
Argentina’s new attempts to force Plaintiffs and other Small Bondholders to forego their contractual rights to payment and accept a one-sided settlement proposal have been supported by the Special Master from the start
The Special Master, unfortunately, has propped up and facilitated Argentina’s attempts to force its “cram-down” proposal on Plaintiffs (as well as the other Small Bondholders). He heaped praise on Argentina and its unilateral offer the moment it was made public, calling it “an historic breakthrough” which “will allow Argentina to return to the global financial markets to raise much needed capital.” . He also lauded Argentina’s conduct with regard to the negotiations, stating that it had “shown courage and flexibility” with its now-public offer. The Special Master continued to praise Argentina publicly in the coming days and weeks, and in doing so repeatedly emphasized his own involvement in and control over the negotiations.
Links to Court documents on the Argentina lawsuits, including source documents for the quotes above, are compiled at this site.
AND THEN, SETTLEMENTS OCCUR
–On February 29, 2016, the Mediator issues a report as follows:
“It gives me greatest pleasure to announce that the 15-year pitched battle between the Republic of Argentina and [a hold-out creditor] is now well on its way to being resolved. The parties last night signed an Agreement in Principle after three months of intense, around-the-clock negotiations under my supervision.”
–Thereafter, the Mediator achieves settlements with additional creditors, including ones who recently requested the Mediator’s termination:
–On March 19, 2016, $155 million of additional settlements are reported
–On April 10, 2016, $253 million of additional settlements are reported
HOW CAN THIS HAPPEN?
Now that settlement payments are being made, the Mediator is, apparently, free to discuss what happened—and he does so last week as follows, according to a Reuters report:
Pollack recounted the relentless shuttle diplomacy, marathon talks, and late-night phone calls and emails that culminated in Argentina agreeing to pay [certain creditors] more than other creditors.
“The [mediated] deal recognized a reality that for Argentina, these people created something close to an existential threat,” Pollack said. “The hedge funds had spent tens of millions of dollars. They had the will and intent to continue and for me it was a question of appealing to both sides’ respective economic interests.”
A change in decision-making personnel helped . . . a lot . . . according to a Reuters report from last week:
The prior government of Cristina Fernandez had made a central policy plank out of her refusal to settle with investors. Fernandez called the holdout hedge funds “vultures” because they were effectively holding a sovereign government hostage by not participating in the earlier debt restructurings agreed to by 93 percent of other creditors.
So the initial breakthrough came when Fernandez was replaced by a more market-friendly government. Even before Mauricio Macri took over as president in December 2015, Pollack received an email from incoming finance secretary, Luis Caputo, asking for a discreet meeting. Up till then Pollack had overseen nearly two years of sporadic talks that had yielded only deeper acrimony.
“You have to have people who are willing. [Former Economy Minister Axel] Kicillof and [Fernandez] were not willing,” Pollack told Reuters. “The Macri administration was motivated and willing.”
Last week, the New York Times explains the personnel change, and its effect, this way:
The Waldorf Astoria hotel in Manhattan has long been a location for secret diplomacy, but few meetings there would have seemed as unlikely as the one that took place one day in early December.
In a hotel conference room, a top Argentine politician drank coffee with two hedge fund executives — a meeting that was nothing short of remarkable after more than a decade of bitter legal skirmishes between Argentina and a group of disgruntled debt holders who at one point seized an Argentine Navy ship. The previous Buenos Aires government reviled the hedge funds as “vultures.”
That meeting on Dec. 7 between Luis Caputo, who days later would be sworn in as Argentina’s finance secretary, and Jonathan Pollock and Jay Newman from Elliott Management, the $27 billion hedge fund founded by Paul E. Singer, was the start of a rapprochement leading to a momentous debt deal that has now allowed Argentina to rejoin the global financial markets that it had been locked out of for 15 years.
Last week, Argentina successfully sold $16.5 billion in bonds to international investors, a record amount for any developing country. And on Friday, Elliott and the other bondholders finally received their reward in the form of billions of dollars in repayment, representing returns worth multiple times their original investments.
“Today, we have put a definitive close to this chapter,” Alfonso Prat-Gay, Argentina’s economic minister, told an Argentine radio station on Friday.
The negotiations that led to the deal were set in motion by the election in November of President Mauricio Macri, who ran on a promise to reignite Argentina’s flailing economy. Striking a deal with the country’s aggrieved bondholders was central to getting that done.
Timely judicial intervention also helped, according to the New York Times:
On Feb. 19, Judge Thomas P. Griesa of Federal District Court in Manhattan, who presided over the dispute in the courts, dealt a blow to the remaining holdouts by agreeing to lift an injunction that prevented Argentina from making any bond payments or raising new money.
Under his ruling, Judge Griesa had set a deadline of Feb. 29 for any deal to be recognized. While the economic terms of the deal with the holdouts had been agreed upon, some of the smaller details were still in dispute.
IN THE END, THE MEDIATOR RECEIVES HIGH PRAISE
“Whenever a problem arose during the negotiations, he always responded with effective and pragmatic solutions,” Argentina’s Caputo told Reuters. “Outstanding job.”
Judge Griesa, who rarely speaks to the press, praised Pollack on Friday for achieving the settlement.
“There has now been great progress in this direction, and this is due in large part to the enormous effort and diplomatic skill of Mr. Pollack,” Griesa told Reuters through his law clerk.
“You have to give Dan Pollack immense credit for creating an environment where, if they wanted to, they could get together and have a discussion,” said Michael Straus, a principal at Montreux Partners and one of the first in the group originally led by NML Capital, a unit of Elliott, to sign a deal.
So, what can we all learn from this?
Connect with Don