An $850 million deal scribbled on a legal pad could cost the hedge funds suing Argentina a bunch of negotiating power

The battle between Argentina and a group of hedge funds it owes money to is not over.
In the latest round, it’s the hedge funds who are losing leverage thanks to a $1 billion deal scribbled on some legal paper.

In case you forgot: A group of funds led by billionaire Paul Singer have been suing Argentina over debt dating back to its 2001 default. While other creditors took haircuts on that debt, Singer & Co. would not, insisting on negotiating their own terms with the country.

In the meantime, Argentina was barred from paying any of its other creditors to settle this debt because of a pari passu clause in the bond contract. (It basically means that no one creditor can get paid unless everyone gets paid.)

This is where the negotiating power comes in. Now that the country has a new, more market-friendly government, Argentina is asking that the injunction on its payments to other bondholders be lifted. The holdout hedge funds think that this will put them in a weaker position at the negotiating table, and point out that Argentina still hasn’t actually paid anyone any money.

But a payout is getting closer. Argentina has reached an agreement with billionaire Kenneth Dart’s EM Ltd. and Montreux Partners, and it argues that that’s why it needs the injunction lifted.

Singer’s holdouts don’t think that this deal should be enough to get the injunction lifted since those creditors only make up 14% of the $9 billion dollars worth of claims due. They also fear that if the injunction is lifted and Argentina can start paying people, Argentina won’t feel the same urgency to do a deal with them.

That said, these things are happening pretty fast for a country that was intransigent for so long. Like, ‘quick grab some legal paper and lets hash this out’ fast.

Consider the legal documents for the agreement with EM:

If you can’t read that, it says:

Subject to approval by the Argentine Congress and to the lifting of the injunction, EM Limited and Argentina agree to resolve litigation for payment of between $842,000,000 and $848,000,000 as finally determined between them.

The parties agree to cooperate with each other in all respects in order to accomplish this settlement and to execute all paper necessary to accomplish this objective.

It’s signed by Ken Johns of EM Limited, and Argentina’s Secretary of Finance.

This is high international finance, people. Watch it work.

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