WRAPUP 4-Argentina bonds, peso reel on country's debt swap plan

Wed Aug 20, 2014 2:50pm EDT

(Adds statement from holdout hedge fund Aurelius)

By Hugh Bronstein and Alejandro Lifschitz

BUENOS AIRES Aug 20 (Reuters) - Argentina's new plan to skirt U.S. courts and resume payment on defaulted bonds aims to protect creditors who participated in two debt restructurings, the economy minister said on Wednesday as the local peso currency weakened to a new historic low.

Defying a U.S. federal court order, Axel Kicillof also said it would be "madness" to pay holdout creditors the 100 cents on the dollar that they were awarded in 2012.

The government has sent a bill to Congress that would replace its New York intermediary bank with state-run Banco Nacion, the latest move in a years-old legal chess game between Argentina and its "holdout" creditors who refused to participate in the restructuring.

Argentina's black market peso reeled on the news, falling 2.0 percent to an all-time low 13.5 to the U.S. dollar. The country's benchmark dollar-denominated bonds due in 2033 slumped more than 2.0 percent in price.

The legal deadlock is squeezing Argentina's foreign reserves and the availability of dollars in the market by preventing the economically ailing country from issuing international bonds.

Last month, Argentina defaulted on an estimated $29 billion of its restructured debt after a New York court blocked an interest payment of $539 million. The payment did not go through to investors because U.S. District Judge Thomas Griesa says restructured bonds cannot be paid unless the holdouts are simultaneously paid 100 cents on the dollar, plus interest.

The $539 million deposited by Argentina remains with intermediary Bank of New York Mellon. Argentina says Griesa overstepped his bounds by blocking the coupon payment, and is moving to ensure future payments go through local banks out of Griesa's reach.

On Tuesday evening, President Cristina Fernandez announced her intention to replace Bank of New York Mellon with state-run Banco Nacion as intermediary. She also offered to swap bonds governed by U.S. law for debt under local jurisdiction.

Kicillof told reporters the proposed swap would neither break existing bond contracts nor be obligatory.

"Argentina is going to continue paying its debts," Kicillof said, mentioning a $200 million payment due on Sept. 30 on restructured Par bonds denominated in dollars. "Argentina will preserve its debt restructurings."

But to pay the holdouts 100 cents on the dollar, in accordance with U.S. court rulings, would be "financial madness", he said.

Holdout fund Aurelius Capital Management issued a statement saying Argentina was "doubling down on an illicit and failed approach" to its defaulted debt. "Argentina's leaders have literally chosen to be outlaws. They have chronically flouted U.S. court orders," the statement said.

The debt swap bill is set to start being debated in the Fernandez-controlled Senate next week. In presenting the idea to the public on Tuesday she gave no hint of how many bond holders would have to participate in the swap for it to be activated.

On international markets, the price on Argentina's widely traded and dollar-denominated Discount bond maturing in 2033 fell 2.31 percent to bid 80.513, with a nominal yield of 11.024 percent.

DOZEN-YEAR CONFLICT

The case goes back to Argentina's 2002 default on about $100 billion in sovereign bonds. The vast majority of holders participated in restructurings in 2005 and 2010, which offered less than 30 cents on the dollar on the defaulted debt.

A group of hedge funds led by Elliott Management Corp and Aurelius opted to sue in the U.S. federal courts, which govern the original bond contracts, for 100 cents on the dollar.

Fernandez and her ministers characterize the funds "vultures" who bought Argentine bonds at steep discounts and are out to wreck the country's finances in their pursuit of astronomical profits.

"They have created conditions of anarchy and the destruction of the rule of law, all so they tenaciously attack countries that do not accept the conditions that they impose," Cabinet chief Jorge Capitanich said.

(Additional reporting by Richard Lough and Walter Bianchi; and Daniel Bases in New York; Editing by W Simon, Clive McKeef, Andrew Hay)

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Comments (1)
The exact definition of the Justice of the United States the figure of contempt, as the case law cited by all the judges of that country, is to commit a “CRIME SLANDERING, REVILING, INSULTING OR THREATENING AN AUTHORITY OR A PUBLIC OFFICIAL IN THE EXERCISE OF THEIR FUNCTIONS. “In this case, slander or libel is before Judge Grisea Argentina by explicitly disobeying a primary failure (pay on Wall Street through BoNY) and a command and prohibition (not change the venue) ; so that the country would enter for the American Justice in a double disobedience.

THIS UNJUST WAR NOW ALSO AGAINST THE US JUSTICE AND THE OBAMA ADMINISTRATION IS MADNESS!!!

PRESIDENT KIRCHNER SHOULD RESIGN, IF SHE DOES NOT WANT OR ABLE TO SOLVE THE HOLDOUT PROBLEM IN GOOD FAITH.

Judge Griesa had already warned Argentina in June:

Citation:
U.S. Judge Warns Argentina Against Debt Swap

June 22, 2014

New York (EFE).- A U.S. FEDERAL JUDGE WARNED ARGENTINA THAT IT WOULD BE VIOLATING A RULING HE HANDED DOWN IN FAVOR OF ITS HOLDOUT BONDHOLDERS IF IT GOES THROUGH WITH A PROPOSED NEW DEBT SWAP, an idea Buenos Aires floated this week as a way to make payments to holders of restructured Argentine bonds in the South American country and not in the United States.

In a brief official letter dated June 20, U.S. District Judge Thomas Griesa wrote that the proposal unveiled Tuesday by Economy Minister Axel Kicillof “is in violation of the ruling and procedures now in place in the Southern District of New York, and the Republic of Argentina is prohibited from carrying” it out.

—————————————–
Judge Griesa is 100% right!

In the bond contracts “Pari Passu” is clear defined.

Argentina is paying the “Exchange bondholders” according to the
agreement reached.

BUT, as in the bond contracts pari passu defined and Judge Griesa says, ARGENTINA MUST ALSO PAY THE “HOLDOUT BONDHOLDERS” ACCORDING TO THE AGREEMENT, THE HOLDOUTS HAVE WITH ARGENTINA!
President Kirchner should end this HORROR WAR against innocent Holdouts and the US Justice, and respect the bond contracts with the holdouts!
President Obama should help and talk to President Kirchner to end Argentina’s Horror-Default.

The Argument: “The Argentine president has argued that obeying the ruling by paying the holdouts would trigger a Rights Upon Future Offers clause in the exchange bond contracts that obliges Argentina to match any improved offer to all bondholders. That could trigger claims of at least $120 billion, according to the proposal.

IS NOT TRUE, BECAUSE :

ARGENTINA SHOULD ONLY GIVE A SIGN, A PROMISE TO JUDGE GRIESA / MEDIATOR POLLACK AND THE HOLDOUTS, THAT IT WILL NEGOTIATE IN GOOD FAITH AND IT WILL FULFILL THE COURT ORDER (EXTENDED TO ALL HOLDOUTS) AND REPAY THE DEBT TO THE HOLDOUTS, AFTER THE RUFO CLAUSE EXPIRES IN DECEMBER 2014.

THEN THE HOLDOUTS WOULD SURELY ASK JUDGE GRIESA TO REINSTALL THE “STAY” UNTIL JANUARY 1, 2015.

Argentina enters into good-faith negotiations with the holdout
creditors – ALL OF THEM –via the offices of NML Capital/Aurelius. A
firm deadline should be set to reach an agreement, say January 2,
2015, two days after the expiration date of the Rights upon Future
Offers clause.

HOW COULD BE THE CONDITIONS FOR THE REPAYMENT?

Argentina owes to today about 230% to the Holdouts (since 2002
Argentina had not repaid a cent to the holdouts)

- at the latest, on 02/01/2015 (end of RUFO clause) Argentina would repay in CASH 100% of the nominal value of the defaulted bonds, which became due before 2015.

- For the accrued interest between 2002-2015 (until now about 130%), Argentina would emit new bonds with a maturity of 5-7 years.

Aug 21, 2014 1:46am EDT  --  Report as abuse
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