WRAPUP 3-Argentina vows to service debt despite new legal blow

Mon Jun 16, 2014 11:37pm EDT

(Adds quotes from Argentine president's speech)

By Lawrence Hurley and Sarah Marsh

WASHINGTON/BUENOS AIRES, June 16 (Reuters) - President Cristina Fernandez vowed on Monday to find a way to service Argentina's restructured debt despite suffering a major setback in a long legal battle against "holdout" investors that pushed the country closer to a new default.

Hours after the U.S. Supreme Court refused to hear an Argentine appeal aimed at staving off a default, a defiant Fernandez slammed U.S. courts for repeatedly ruling against her government.

She also said Argentina was the victim of "extortion" by holdouts who refused to join debt restructuring deals since the catastrophic 2001-02 default on $100 billion of sovereign debt.

But Fernandez said she was still open to negotiations and insisted she would continue to pay the more than 90 percent of creditors who accepted a renegotiation of the defaulted debt.

"Argentina will fulfill its obligations and it will not default on its restructured debt," she said in a televised speech.

She gave no details on how it would manage that, however, saying only that she had told her economy minister to set up "all the tools needed to make the payment to those who trusted in Argentina."

The Supreme Court's unexpected refusal to hear Argentina's appeal left intact lower court rulings that ordered it to pay holdout hedge funds $1.33 billion.

Argentina has so far refused to pay the holdout investors unless they also agree to a restructuring of the debt.

If it sticks to that position, U.S. District Judge Thomas Griesa could prevent payment to exchange bondholders even though the country is able and willing to service that debt.

That could result in a default by June 30, when payments are due on discount bonds under U.S. jurisdiction.

Fernandez calls the hedge funds "vultures" and says that agreeing to pay them on their terms would lead to claims from other holdouts on about $15 billion of debt -- equivalent to more than half the foreign currency reserves held by Argentina's central bank.

"Argentina has shown it is willing to negotiate, but it does not have to submit itself to such extortion," Fernandez said.

She insisted Argentina cannot give holdouts preferential treatment over exchange bondholders after many of them bought the debt at a massive discount and are claiming payback in full.

Argentine stocks and bonds fell sharply on Monday because investors had expected the Supreme Court to delay a decision on the appeal, giving Fernandez time to negotiate with holdouts or restructure its exchange bonds outside of U.S. jurisdiction.

"It's a very damaging scenario for Argentina," said Marco Lavagna at Ecolatina consultancy, noting that how lower courts implemented their rulings was key. "Maybe something could open up there and allow for negotiation."

NEGOTIATIONS

Argentina has hinted it might consider negotiating with holdouts but could not do so until after December 31 when a clause in its debt swaps prohibiting it from offering holdouts better terms expires.

Whether Argentina can keep stalling investors and U.S. courts until that date remains to be seen.

Fernandez said on Monday her government would welcome it if holdouts agreed to join its debt swaps.

The Supreme Court decision hurts Argentina's efforts to normalize relations with foreign investors and creditors in order to regain access to international funds.

The holdout investors fighting the legal battle are led by hedge funds Aurelius Capital Management and NML Capital Ltd, a unit of billionaire Paul Singer's Elliott Management Corp.

More than 90 percent of the debt was renegotiated in two debt swaps in 2005 and 2010 with investors accepting between 25 and 29 cents on the dollar.

The International Monetary Fund has said it is worried that the rulings against Argentina could make it more difficult for other countries to restructure their debt and put financial calamity behind them.

"This is surprising because it is giving a precedent for any 'vulture fund' to go against any country, so any country is vulnerable in a restructure," said Sebastian Centurion at ABC Exchange.

But others say collective action clauses now broadly used in sovereign debt issuance should prevent Argentina's case becoming a precedent and there was little reaction in other emerging markets to the Supreme Court decision.

In another blow to Argentina, the Supreme Court also ruled that creditors can seek information about Argentina's non-U.S. assets in a case about bank subpoenas.

The question was whether NML could enforce subpoenas against Bank of America and Banco de la Nacion Argentina. The court's ruling may nonetheless have limited impact in part because of Argentina's limited assets around the world.

NML has in the past pursued Argentine assets aggressively in its fight to get full repayment for its bonds, even seizing an Argentine navy ship in Ghana in 2012. (Additional reporting by Daniel Bases in New York and Alejandro Lifschitz and Eliana Raszewski in Buenos Aires; Editing by Andrew Hay and Kieran Murray)

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Comments (2)
GermanHoldout wrote:
• Now after the US Supreme Court rejected Argentina’s appeal, the government of Cristina Kirchner and the Holdouts are forced to sit down and negotiate immediately an acceptable solution to end this HORROR-Default with endless suffering for tens of thousand holdout creditors and their families.
Most of the Holdouts are “before default buyer”, who have bought their bonds at an average of 100% or even higher. That is why we cannot accept similar offers as they were in 2005 and 2010.
Argentina clearly has the capacity to repay the debt to the holdouts after more than a decade! The outstanding debt is only approximately 12 Billion. (incl. accrued interest) It is not much for the 3. largest economy in South America.
Today, Argentina’s dollar debt with private creditors amounts to only 9.5 percent of GDP. It is the lowest in the whole world.
Today, the dollar debt with private creditors amounts to only 9.5 percent of GDP, against 95.3 per cent in 2002. Other countries in the region, such as Brazil, with gross debt / GDP ratio of 67.2 percent, and more Europe-Greece 179.5, 130.6 Italy, Portugal 122.3, 93.6 Britain, France 92.7, 91.8 and Germany 80.4 Spain – and the United States, with 108.1, are way up from Argentina, in the same record of the IMF in 2013 to 44 percent figure.
The “RUFO” clause (Rights Upon Future Offers) expires as of December 2014. That means, that from 01/01/2015 Argentina can make a better offer to the Holdouts, than it made in 2005 and 2010.
If Argentina and the holdouts made already NOW A BINDING AGREEMENT with respect to the “time after” (end of the “Rights Upon Future Offers (RUFO) clause in December 2014), seizure risks and a technical Default would be immediately averted. Argentina could immediately return to the capital market and thus Argentina could refinance the payments to the holdouts, without using reserves. And also the old bonds would be immediately traded at an predictable and fair price.
Holdouts want a simple solution.
Holdouts DO NOT want such exotic financial constructs, as they were the swap conditions in 2005 and 2010, with an exorbitant Haircut, with many new bonds, with only Discount bonds above $50000, GDP Warrants etc., and with maturities in the eternity. Such “shares like” financial constructs are inacceptable.
A swap from the defaulted old bonds to new bonds is unacceptable also for tax reasons.
In Germany, for example, if you accepted a swap, then you would have to pay for the new bonds 30% extra tax…
Following simple conditions might be acceptable for the Holdouts and maybe also for Argentina on the basis of the old bonds.(Without swapping from old to new bonds, also because of tax reason):
Argentina (or investment banks, funds) make a buyback offer of about 130-140% for the holdouts ( for owing capital+ accrued interest between 2002-2015).
(Argentina owes to today about 230%, a cash buyback of 130-140% would so mean for Argentina already a debt relief of about 100%)

Jun 17, 2014 6:22am EDT  --  Report as abuse
GermanHoldout wrote:
Now after the US Supreme Court rejected Argentina’s appeal, the government of Cristina Kirchner and the Holdouts are forced to sit down and negotiate immediately an acceptable solution, probably under the review of Judge Griesa, to end this HORROR-Default with endless suffering for tens of thousand holdout creditors and their families.
Most of the Holdouts are “before default buyer”, who have bought their bonds at an average of 100% or even higher. That is why we cannot accept similar offers as they were in 2005 and 2010.
Argentina clearly has the capacity to repay the debt to the holdouts after more than a decade! The outstanding debt is only approximately 12 Billion. (incl. accrued interest) It is not much for the 3. largest economy in South America.
Today, Argentina’s dollar debt with private creditors amounts to only 9.5 percent of GDP. It is the lowest in the whole world.
Today, the dollar debt with private creditors amounts to only 9.5 percent of GDP, against 95.3 per cent in 2002. Other countries in the region, such as Brazil, with gross debt / GDP ratio of 67.2 percent, and more Europe-Greece 179.5, 130.6 Italy, Portugal 122.3, 93.6 Britain, France 92.7, 91.8 and Germany 80.4 Spain – and the United States, with 108.1, are way up from Argentina, in the same record of the IMF in 2013 to 44 percent figure.
The “RUFO” clause (Rights Upon Future Offers) expires as of December 2014. That means, that from 01/01/2015 Argentina can make a better offer to the Holdouts, than it made in 2005 and 2010.
If Argentina and the holdouts made already NOW A BINDING AGREEMENT with respect to the “time after” (end of the “Rights Upon Future Offers (RUFO) clause in December 2014), seizure risks and a technical Default would be immediately averted. Argentina could immediately return to the capital market and thus Argentina could refinance the payments to the holdouts, without using reserves. And also the old bonds would be immediately traded at an predictable and fair price.
Holdouts want a simple solution.
Holdouts DO NOT want such exotic financial constructs, as they were the swap conditions in 2005 and 2010, with an exorbitant Haircut, with many new bonds, with only Discount bonds above $50000, GDP Warrants etc., and with maturities in the eternity. Such “shares like” financial constructs are inacceptable.
A swap from the defaulted old bonds to new bonds is unacceptable also for tax reasons.
In Germany, for example, if you accepted a swap, then you would have to pay for the new bonds 30% extra tax…
Following simple conditions might be acceptable for the Holdouts and maybe also for Argentina on the basis of the old bonds.(Without swapping from old to new bonds, also because of tax reason):
Argentina (or investment banks, funds) make a buyback offer of about 130-140% for the holdouts ( for owing capital+ accrued interest between 2002-2015).
(Argentina owes to today about 230%, a cash buyback of 130-140% would so mean for Argentina already a debt relief of about 100%)

Jun 17, 2014 6:29am EDT  --  Report as abuse
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