As Bloomberg reports that Argentina will negotiate with the bond investor holdouts, the country carries in its pocket powerful negotiating tools.
Argentina to negotiate with the holdout group
According to a report from Manhattan federal court today, a lawyer for Argentina said it will negotiate with the holdout group, including Elliott Management Corp’s NML Capital, which is owed $1.6 billion.
The issue, however, isn’t the money owed to NML and other holdouts. It is the total amount the settlement could cost the Latin American nation just emerging from a nasty recession. Estimates are that Argentina could be on the hook for as much as $15 billion if it complies with the US Supreme Court ruling, an amount government officials have said would place the nation in an economic tailspin.
Comparisons to 1933 Germany and the social unrest that was brought by demands for debt repayment that could not be met run through the minds of those close to the situation.
Argentina’s planned default
In an article published earlier today, we said that the default was going on as planned, noting at the end of the article “The deal must be closed by the end of the month, giving added pressure on negotiations with the hedge fund holdouts if such negotiations were to take place.”
In a classic negotiation tactic, Argentina now has added time pressure to the holdouts and something even more powerful. The specter of default with a speculated military response to attempts to collect on the debt by re-possessing military equipment, something not likely to be verbalized in negotiations but a threat that could linger through as those managing the deliberations think four of five steps ahead.
“If they want to talk about settlement, they know how to find us,” Robert Cohen, a lawyer representing Elliott Management Corp.’s NML Capital, was quoted as saying in the hearing today.
Elliott’s negotiated settlement with Argentina
Cohen and his crew at Elliott might find it impossible to collect 100% in a negotiated settlement with Argentina. The question is can Elliott and the Argentine government bury the hatchet after an embarrassing string of events, including the holdouts re-possessing an Argentine Navy vessel and separate investors attempting to claim the president of Argentina’s plane – as the president sat in it while it was refueling on a foreign airport tarmac.
Whatever the outcome, Argentina appears to have stacked the deck and is loaded for a battle. Either Elliott and the hedge fund holdouts are will to negotiate a deal of some sort, and they come to some settlement that is likely to be far away from 100%. If not, the holdouts force Argentina’s hand and then must engage in a worldwide game of hide and seek with Argentine assets.