'Serial defaulter' vs 'vultures': Argentina's 15-year debt battle

Argentina ended a 15-year siege by creditors when it agreed Monday to meet most of their demands for repayment on defaulted bonds.

The case heavily involved bond market esoterica and especially the meaning of a Latin contract phrase. But it raised an important issue of, when a majority of creditors join together to help a defaulted country restructure its finances and get back on its feet, should a minority which refuses to go along retain their rights to repayment.

Here is an outline of the saga:

Record default

At the end of 2001, after three years of recession, Argentina devalued the peso sharply and defaulted on nearly $100 billion in debt.

In deals in 2005 and 2010, holders of 93 percent of its bonds agreed to restructure the debt, exchanging their old bonds for new ones while accepting a 70 percent loss. But they were guaranteed future repayment and the government was able to begin repairing its finances.

It was assumed that the other creditors who held out from the restructuring had given up their rights. But two New York hedge funds, Elliott Management's NML Capital and Aurelius Capital Management -- both of which bought up deeply discounted Argentine bonds after the default -- sued for full payment.

The 'vulture' case

The hedge funds, which Buenos Aires labeled "vultures", cited a standard clause in bond contracts asserting all creditors have "pari passu" or equal treatment rights to repayment. Argentina argued that this meant any repayment should follow the restructuring deals. The hedge funds said it means they merit full payment on their bonds -- face value plus interest -- just as the holders of the exchange bonds get full payment on those.

In 2012 New York judge Thomas Griesa agreed with the hedge funds and told Argentina it could not make payments to any international creditors unless it first repays the holdouts completely.

International interest

Griesa's decision sparked international concern because, if "pari passu" meant all holdouts retain full repayment rights, then there was little motivation for creditors to join together and help restructure a country's debt after it defaults. That would make it harder to help bankrupt governments get back on their feet. The International Monetary Fund, which often leads financial rescues, expressed concern about the precedent.

Kirchner refuses to pay

The government of then-president Cristina Kirchner refused to pay. It labeled the hedge funds "vultures" for scooping up the debt cheaply and seeking to profiteer on its problems.

The hedge funds countered that Argentina was a repeat offender for having defaulted on its debt several times in the 19th and 20th centuries.

New default

After two years of failed appeals and blocked from making payments to the exchange bondholders, in 2014 Argentina defaulted again.

The court assigned a mediator, Daniel Pollack, to craft a compromise. But Buenos Aires insisted that being forced to pay all the holdouts affected by the NML case, representing claims of more than $9 billion, would deeply strain the country's finances when it had less than $27 billion in reserves.

Finally a deal

In November 2015 businessman and former Buenos Aires mayor Mauricio Macri defeated Kirchner's chosen heir in the presidential race and immediately moved to settle the festering dispute.

Macri offered $6.5 billion against the $9 billion in claims, and quickly some of the holdouts accepted. That put pressure on the Elliott-led group and they accepted 75 percent of their claims, leaving them with a still-handsome profit on the bonds.

But to make the payment, Argentina is expected to issue $15 billion in new bonds on international markets.