By Alejandro Lifschitz and Brad Haynes
BUENOS AIRES Aug 26 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.