Default legacy haunts Argentina as German suit looms large

Bloomberg

Argentina is about to find itself in yet another legal dispute with disgruntled creditors. A group of European investors who own defaulted Argentine debt plan to sue the country in Germany as soon as next month after they were excluded from a settlement offer, said Jakob Heichele, a Munich-based attorney at a law firm that bears his name and who represents the bondholders. The threat comes after Argentina offered to repay only German holders whose statute of limitations has yet to expire, previously initiated court proceedings, or won a legal judgment.
The looming confrontation comes seven months after the country reached a historic settlement with the biggest creditors from its 2001 default, ending years of bitter court fights with investors led by hedge-fund billionaire Paul Singer. The lawsuit also coincides with Argentina’s plan to sell at least 500 million euros ($562 million) of bonds in its first European debt offering in six years.
“Who would buy a new bond if Argentina is not paying on its old debt?” said Heichele, whose firm represents about 100 holders of Argentine bonds worth 100 million euros. “The media always gives the impression that Argentina solved the holdout problem already, but that is not true. A lot of people, especially here in Europe, are still waiting for their money.”
Bonds bought in the secondary market should also be eligible for payment because under German law, Argentina’s restructuring offers in 2005 and 2010 reset the statute of limitations, according to Heichele. He estimates there’s as much as 600 million euros worth of defaulted Argentine bonds in the hands of European investors. Argentina said it would pay the German bondholders who qualify 150 percent of the face value of their notes. The offer caused defaulted Argentine bonds that are governed by German law to soar to as high as 60 cents on the dollar from as low as 10 cents.
Argentina is looking to resolve all its remaining conflicts, and this separate process for German-law bondholders signals that willingness, which the government hopes the European investor base will appreciate, according to a Finance Ministry official.
Michael Roche, a strategist at Seaport Global Holdings LLC, said the prospect of a lawsuit from German investors won’t derail Argentina’s planned European bond offering.
“It’s a curiosity to me that this news comes out and coincides with the sovereign’s interest in issuing euro-denominated debt,” he said. “Even if what’s outstanding is a relatively small sum, it may be a necessary action for them to be considered a borrower in good standing. Putting forth an offer for these bonds mops up an undesired legacy. If you’re going to target the most important source of loanable funds in Europe, it’s going to be the Germans.”
Argentina has hired Banco Bilbao Vizcaya Argentaria SA, BNP Paribas SA and Credit Suisse Group AG to arrange investor meetings in London, Frankfurt, Munich, Paris and Milan to drum up demand for its European debt sale.
President Mauricio Macri has wasted little time in raising money abroad since settling with creditors earlier this year. The country has sold a record $19 billion of bonds overseas since regaining access to debt markets for the first time since 2001.
Even some German investors who are eligible to receive Argentina’s payout are mulling litigation of their own. Max Bohrer, a plastics-factory owner in Munich who owns Argentine bonds, estimates that based on his legal judgment, he should receive a payment that’s 250% of the face value of his notes. He and about 15 other German investors with about 200 million euros of defaulted Argentina bonds are “seriously considering” suing again, he said.
“We have waited 16 years and I think at this moment, it makes no difference if we are going to wait another 10 years,” Bohrer said. “We didn’t just hold out, we actually litigated and got judgments in our favor. It is only fair we get the full value of our judgment.”