BUENOS AIRES Argentina's government is proposing a voluntary bond swap on its foreign debt, shifting payments to Buenos Aires, if it cannot overturn U.S. court rulings that threaten to trigger its second debt crisis in just over a decade.
The bond swap would allow Argentina to keep paying the creditors who agreed to restructure the country's sovereign debt after a record $100 billion default in 2002, President Cristina Fernandez said in a televised address on Monday night.
Investors in international markets would have the option to swap their foreign debt for Argentine bonds if ongoing appeals of the U.S. court rulings are rejected, a government source told Reuters on condition of anonymity.
Argentina on Friday lost its appeal of a U.S. court order requiring it to pay $1.33 billion to "holdout" hedge funds that refused steep discounts following the 2002 default.
If Argentina refuses to pay off the holdouts in full, the ruling could block payment overseas to the 93 percent of bondholders who accepted restructurings in 2005 and 2010 that give them less than 30 cents on the dollar.
In a direct plea to the U.S. Supreme Court, Fernandez urged justices to overturn the decision, which she warned could undermine future sovereign debt restructurings.
She also proposed a third restructuring of Argentina's defaulted debt, offering holdouts another opportunity at the terms offered in the 2010 bond swap.
Her more conciliatory tone contrasted sharply with her past denunciations of the so-called "vulture funds" she accuses of trying to bankrupt the country. That defiant attitude had drawn the ire of judges in the United States, who fault Argentina for a lack of good faith negotiation with creditors.
Still, Fernandez insisted that her government was meeting its obligations and rejected one appeals court judge's description of Argentina as a "uniquely recalcitrant debtor."
"I would say that rather than 'recalcitrant debtors' we are serial payers," she said. "Just as the country entered the Guinness (World Records) for the biggest sovereign debt default, we should also be in the Guinness among the countries that have most fulfilled our obligations over the past 10 years."
In the 2005 and 2010 restructurings, Argentina issued international debt under New York, British and Japanese law.
But Fernandez's proposal of a new bond swap raised questions about whether investors would be interested in taking Argentine bonds in lieu of foreign debt, given strict currency and capital controls that the left-leaning Fernandez government has imposed.
"Changing the location of the payments to Buenos Aires is going to be extremely complicated amid the currency controls," said Jorge Todesca, a former deputy economy minister who is now head of the Finsoport economic consultancy.
"Argentina will never be able to issue public debt abroad if it continues trying to dodge a settlement," he said. "We can assume Argentina will continue to be financially isolated from the rest of the world as long as this goes on."
The president said she would send a bill to Argentina's Congress on Tuesday in order to offer remaining holdouts the same terms as the restructured debts.
"I expect some holdouts to take this opportunity and tender their defaulted debt," said Alberto Bernal, head of emerging markets at Bulltick Capital Markets in Miami. "The hardcore litigants will remain out of the swap."
Bernal called the proposal to swap foreign debt for bonds paying in Buenos Aires a "pragmatic" move, adding that it would be easier than getting the necessary number of bondholders to agree on changing covenants of existing bonds.