Argentine debt restructuring

The Argentine debt restructuring is a process of debt restructuring by Argentina that began on January 14, 2005, and allowed it to resume payment on 76% of the US$82 billion in sovereign bonds that defaulted in 2001 at the depth of the worst economic crisis in the nation's history. A second debt restructuring in 2010 brought the percentage of bonds under some form of repayment to 93%, though ongoing disputes with holdouts remained.^[1][2] Bondholders who participated in the restructuring settled for repayments of around 30% of face value and deferred payment terms, as well as warrants that paid investors based on annual economic growth as part of the same offer, and began to be paid punctually; the value of their nearly worthless bonds also began to rise.^[3][4][5] The remaining 7% of bondholders were later repaid 25% less than they were demanding, after centre-right and US-aligned leader Mauricio Macri came to power in 2015.^[6][7]

As part of the restructuring process, Argentina drafted agreements in which repayments would be handled through a New York corporation and governed by United States law. The holdout bondholders found themselves unable to seize Argentine sovereign assets in settlement,^[8] but realized that Argentina had omitted to provide for holdout situations and had instead deemed all bonds repayable on pari passu (equal) terms that prevented preferential treatment among bondholders. The holdout bondholders therefore sought, and won, an injunction in 2012 that prohibited Argentina from repaying the 93% of bonds that had been renegotiated, unless they simultaneously paid the 7% holdouts their full amount due as well. Together with the agreement's rights upon future offers ("RUFO") clause, this created a deadlock in which the 93% of renegotiated bondholders could not be paid without paying the 7% holdouts, but any payment to the holdouts would potentially (according to Argentina) trigger the 93% being due repayment at full value too; a sum of around $100 billion that Argentina could not afford.^[9] The courts ruled that as Argentina had itself drafted the agreement, and chosen the terms it wished to propose, it could not now claim the terms were unreasonable or unfair, and that this could not be worked around by asserting sovereign status since the injunction did not affect sovereign assets, but simply ruled that Argentina must not give preferential treatment of any group of bondholders over any other group when making repayments.

Subsequently, though Argentina wanted to repay some creditors, the judgment prevented Argentina from doing so, because being forced to repay all creditors, including the holdouts, would have totaled around $100 billion. The country was therefore categorized as being in selective default by Standard & Poor's and in restricted default by Fitch.^[10][11] The ruling affected New York law Argentine bonds; Argentine bonds issued under Buenos Aires and European law were not affected.^[12][13]

Proposed solutions include seeking waivers of the RUFO clause from bondholders, or waiting for the RUFO clause to expire at the end of 2014.^[9] The dilemma raised concerns internationally about the ability of a small minority to forestall an otherwise-agreed debt restructuring of an insolvent country,^[9] and the ruling that led to it was criticized.^[14]

Although the media widely reported that the default ended with payments to the principal bondholders in early 2016, during the presidency of Mauricio Macri, several hundred million dollars in outstanding defaulted bonds remained unpaid, which resulted in continuation of litigation. In November 2016 Argentina announced that it had settled with additional creditors for US$475 million.^[15]

Argentina defaulted again on May 22, 2020, by failing to pay $500 million on its due date to its creditors. Negotiations for the restructuring of $66 billion of its debt continue.^[16]