Thursday, June 19, 2014

Argentina: Update--Stay Issued Re: Bondholders' Defaulted Debt, High Court Orders Nation to Reveal All Assets

According to The Latin American Tribune, a US appellate court on Wednesday (June 18) lifted its stay of a lower-court judge’s order requiring Argentina to pay bondholders who refused to accept a steep haircut on its defaulted debt.

The decision by the 2nd US Circuit Court of Appeals in New York City was issued two days after the US Supreme Court refused to hear the Argentine government’s challenge of US District Judge Thomas Griesa’s ruling ordering Buenos Aires to pay $1.3 billion to a group of hedge funds led by New York-based Elliott Management Corp.’s NML Capital Ltd unit.

Including interest, the full amount owed to those litigating bondholders is US$1.5 billion.
US Supreme Court ruled Monday (June 16) that NML and other bondholders can ask US courts to compel Argentina to reveal the locations of all of its assets.

COMMENT: Denounced by Argentina as “vulture funds,” NML and other entities acquired risky Argentine bonds at high interest rates when Buenos Aires defaulted on roughly $100 billion in debt in December 2001, the largest sovereign default in world history, amid a financial meltdown and economic depression.

Those creditors have since refused to participate in restructurings in 2005 and 2010 that saw the vast majority of holders of Argentine sovereign debt accept a steep haircut.

Implementation of Judge Griesa’s order would “push the country into default,” Argentine Economy Minister Axel Kicillof said Tuesday (June 17).

That would occur because other holdout bondholders that were not part of the litigation could also demand full repayment on the defaulted debt.

Argentina says those potential claims would bring the total owed to the holdouts to some $15 billion, equivalent to half of Argentina’s foreign-exchange reserves.

Kicillof, therefore, said Buenos Aires is planning a new swap of restructured debt so that it can make payments in Argentina--and not in the United States-- to creditors who accepted the 2005 and 2010 haircuts.

By issuing new bonds governed by Argentine law, Buenos Aires hopes to skirt a ruling by Griesa that would bar it from making a scheduled June 30 payment to exchange bondholders unless it makes payment in full to the holdouts at the same time.

Argentina will enter into a technical default if it does not make payment on the exchange bonds on that date.