Investors who won a $16 billion judgment against Argentina over its nationalization of energy firm YPF SA more than a decade ago are open to receiving payment in bonds instead of cash, according to people familiar with the matter. The dispute has dragged on Argentina's attempts to emerge from decades of financial debacles, and the more flexible stance on repayment could mark an olive branch in the ongoing legal battle.

Unlocking a Path to Resolution in Argentina's Longstanding Dispute

Burford Capital's Openness to Bonds Signals Potential Compromise

Burford Capital, a litigation funder that's the biggest stakeholder in the case, would accept sovereign bonds or other marketable securities as payment, considering the Argentine central bank's depleted foreign reserves, the people noted, asking not to be identified because the discussions are private. The fund's more flexible stance on repayment could mark an olive branch in a dispute that has persisted for over a decade, as Argentina grapples with its history of financial turmoil.Burford Capital acquired the rights to the lawsuit in 2015 for $16.6 million from former YPF shareholders and stands to make at least $6.2 billion if the full judgment is paid. The fund's willingness to consider alternative forms of payment, such as bonds, could signal a shift in the dynamics of the long-running dispute, potentially paving the way for a resolution.

Ongoing Negotiations and Challenges Facing Argentina

Talks between Burford representatives and government officials have gone nowhere despite meetings in recent weeks, the people said. The lack of meaningful progress under President Javier Milei, who took office last December, comes more than a year since a US federal judge ruled in Burford's favor.Argentina's Economy Ministry and Milei's chief spokesperson didn't respond to requests for comment. Milei remarked several months ago on the possibility of selling a "perpetual bond" to pay down the YPF case, but no concrete strategy has emerged. The central bank's net negative reserves, where liabilities exceed assets, pose a significant impediment to making cash payments.

Milei's Reforms and Argentina's Efforts to Regain Investor Confidence

Wall Street has warmed up to Argentine dollar bonds as Milei implements strict austerity measures and passes business-friendly reforms through Congress. Sovereign notes, which were deep in distressed territory a year ago, are now the best performers in emerging markets so far in 2024.However, Argentina's history of reneging on its sovereign debt would lend a note of irony to Burford receiving them as payment. In a similar case, Paul Singer's Elliott Management sued the Argentine government over its 2001 default and waged a 15-year court fight to collect on sovereign debt it held. Argentina settled with Singer and other investors for $4.7 billion in 2016.

The High Stakes of the YPF Dispute and Milei's Broader Agenda

The stakes are high for Argentina not just in this case, but also as a litmus test in Milei's bid to attract foreign investment. The president's new reforms meant to bring in large foreign investments specifically allow companies to resolve potential legal disputes outside Argentina should a project go awry there.The dispute comes against the backdrop of another severe recession in Argentina marked by 200% inflation and Milei's efforts to shore up the nation's reputation abroad. On top of the YPF case, the libertarian must also manage a $44 billion program with the International Monetary Fund as well as a $1.5 billion case in the UK and payments to the nation's current bondholders due in January.The lawsuit in US courts stems from Argentina's seizure of YPF in 2012. US District Judge Loretta Preska ruled in 2023 that the nationalization of YPF violated the company's bylaws that required the energy firm to make a tender offer to all shareholders. Argentina is appealing Preska's collection judgment, but failed to post security during the appeal, leading Preska to rule that the judgment was subject to immediate collection.The most recent wrinkle in the case came when the US Department of Justice sent Preska a letter asking she not allow Burford and others to seize YPF's US-listed shares. The Justice Department said allowing a private litigant to seize foreign assets on US soil poses risks to US foreign policy interests and reciprocity abroad.