| July 29
July 29 As Argentina's options run out as the
clock ticks down to the deadline before a default, attention is
turning to the committee that makes the "official" call on such
matters - even though that call is really only for the benefit
of those investors who bought insurance in case of non-payment.
Argentina is out of legal options to avoid paying a
court-ordered $1.33 billion, plus interest, to the holdout
creditors who declined to restructure their bonds. If the
payments are not made, the country will have defaulted on its
debt obligations for the second time since it missed a payment
in January 2002 that affected roughly $100 billion in sovereign
The actual determination of default is made by the
International Swaps and Derivatives Association, which says
whether a default, or credit event, has occurred for those who
bought credit-default swaps, known as CDS and which is insurance
that protects investors against such an occurrence. If that
happens, the amount that would be paid out to investors who
insured their Argentine debt is a bit more than $1 billion. By
way of comparison, the net notional value of Brazil CDS is more
than $16.8 billion.
ISDA usually makes a determination after a specific request
by a holder of credit-default swap contracts; if the parties are
still in talks, there might be some wiggle room. For bondholders
without insurance, there's no real official call on default. It
is simply the passage of the deadline and no payment showing up
in creditor accounts.
Argentina attempted to pay a scheduled interest payment due
June 30 to the bondholders who accepted restructured debt in
2005 and 2010 by transferring $539 million with indentured
trustee Bank of New York Mellon's account at the Central Bank of
But that money was not transferred to investors because U.S.
District Judge Thomas Griesa ruled that the country has to pay
all investors, including the holdouts. The holdouts are led by
NML Capital Ltd, an affiliate of New York-based hedge fund
Elliott Management Corp, and Aurelius Capital Management,
another New York-based hedge fund.
The 30-day grace period expires Wednesday at midnight EDT -
and that's where things get fuzzy.
ISDA's determinations committee would consider "whether
there is a 'failure to pay' credit event," according to market
participants. Argentine officials have said they have paid -
because they deposited the money with BNY Mellon - but market
participants say Argentina's position isn't relevant to the
At that point, though, one of the CDS holders needs to pose
a question to the determinations committee through ISDA's
website - a public spot where investors can ask anonymously if
such an event has occurred. The process then moves somewhat
quickly; the determinations committee could meet as soon as the
An ISDA spokesman said determination on defaults can be held
via a conference call.
Investors may choose to move quickly if there is no payment
by the end of Wednesday.
"My view is that ISDA will say it is a default if the money
doesn't arrive by the end of the day, and then it will be
litigated by the people on the wrong side," said Varun Gosain, a
portfolio manager at New York-based Constellation Capital
Management who participated in the debt exchanges. Constellation
has investments in Argentine assets.
"Given it is so focused on the fact that you have this issue
and it is not resolved, I would be inclined to think more likely
than not it would be considered a default and no matter what the
outcome is, it is going to litigated."
There are five determination committees, each with 15 voting
members, representing various regions of the world. The
committee for the region in question votes on default, with 12
of 15 needing to vote in favor. Elliott is slated to become a
member of the determination committee in all regions in
(Reporting by Daniel Bases in New York; Additional reporting by
Carolyn Cohn in London and Sarah Marsh in Buenos Aires; Editing
by Leslie Adler)