(Adds Kicillof comments from U.N. news conference In paragraphs
7-9, and link to video recording)
By Daniel Bases and Rodrigo Campos
UNITED NATIONS, June 25 Argentina is being
pushed toward a new default after a U.S. Supreme Court decision
favored holdout creditors seeking payment on bonds it defaulted
on in 2001-2002, Economy Minister Axel Kicillof warned United
Nations diplomats on Wednesday.
Referring to those creditors as "vulture funds," Kicillof
said the June 16 decision by the top U.S. court to deny
Argentina the chance to appeal a lower court ruling means it
faces an insurmountable payment to all existing bondholders,
given it has just $28.5 billion in foreign currency reserves.
"So probably this is going to push us into a technical
default," Kicillof said through an interpreter. "Whichever way
you look at it this ruling is forcing Argentina towards the risk
of economic crisis."
The holdouts are led by Elliott Management's NML Capital and
Aurelius Capital Management, two hedge funds that specialize in
buying up deeply discounted or distressed debt and negotiating
profitable settlements, often through the use of the courts.
"Once these funds get recognition of 100 percent of the
value of their bonds, which were purchased under vile conditions
of having paid only 30 cents on the dollar, there could be more
demand from other holders who did not participate in the
restructurings," Kicillof said.
He was speaking to members of the Group of 77 plus China,
meeting at the United Nations in New York.
Kicillof arrived in New York in the morning and did not meet
with the holdouts during his stay, which lasted about 10 hours.
He quickly left for the airport to return to Buenos Aires after
an early evening U.N. news conference.
"No, I have no plans to hold meetings before leaving," he
told reporters, referring to the holdouts, stressing the
government was simply asking for more time to negotiate.
"We have a legal representative here in New York that is in
communication with the court and lawyers from the other party,"
U.S. District Judge Thomas Griesa of the Southern District
of New York had ordered Argentina to pay the holdouts $1.33
billion plus accrued interest, at the same time it pays the 93
percent of bondholders who accepted the terms of the sovereign
restructuring in 2005 and 2010.
Argentina is due to make a $900 million coupon payment on
June 30, but has a 30-day grace period in which to come to an
agreement with the holdouts before a default can officially be
The holdouts have written to Griesa saying they would
discuss an accommodation to let Argentina pay other bondholders
facing a potential default if good progress is made in any
talks. But they said there were no grounds for Griesa to
reinstate a suspension of his order for Argentina to make
Daniel Pollack, the court-appointed special master in the
dispute, issued a statement on Wednesday confirming a Reuters
report that he had met with lawyers from both sides on Tuesday.
"No resolution has been reached," the statement said, adding
that he also spoke with both sides in phone calls in the last 48
Attempts to contact the holdout investors on Wednesday were
Argentina has been the subject of numerous creditor lawsuits
stemming from its default. The current case, referred to as the
pari passu, or equal treatment case, was filed in 2008. Griesa
originally decided in favor of the holdouts in 2012, leaving
Argentina with years to consider its alternatives should the
appeal process fail.
The U.S. Supreme Court's refusal to hear Argentina's appeal
exhausted its ability to overturn the ruling.
Argentina says it is being ordered to pay the holdouts $1.5
billion while the holdouts contend that by June 30 the figure
will have risen to $1.65 billion because of accrued interest.
Argentine officials, including President Cristina Fernandez,
have said the country will not pay these investors, arguing it
could face potential demands for up to $15 billion from other
holdouts not involved with the case - an amount representing
more than half of the government's foreign currency reserves.
The United Nations trade agency, UNCTAD, weighed in on the
case on Wednesday, echoing concerns voiced by the United States
as well as the International Monetary Fund that the ruling in
favor of holdouts erodes sovereign immunity and is a setback for
the debt restructuring process.
However, investors and legal advisers alike note changes to
the covenants in bond contracts have adapted to avoid such
disputes and the legal battle with Argentina is so unique that
chances for a repeat situation have been dramatically reduced.
One indication that bonds issued under New York law are not
being shunned, at least not so far, is last week's well-received
10-year issue by Ecuador. This came after Ecuador selectively
defaulted on its debt in 2008, calling debtholders "monsters,"
and saying that the debt issued by past governments
"It is kind of ironic that the day after the Supreme Court
came with this decision, we had not Peru, not Colombia, not
Mexico, not even Brazil; we have freakin' Ecuador coming to the
market with a $2 billion (bond) with a yield of less than 8
percent, and the deal was absorbed very well and the bond is
flying now," Javier Kulesz, emerging market credit analyst at
Nomura Securities, said at a forum in New York.
Despite the tough public stance, markets believe the parties
will eventually negotiate a solution.
Argentina's U.S. dollar-denominated 2033 discount bonds last
traded at 87.5 cents on the dollar, yielding 9.93 percent
. That is little changed on the day, but just off
Monday's high when it hit its best levels since August 2011.
When the threat of a possible default rose one week ago, the
price of those bonds slid to about 73.4 cents.
The cost of insurance against a default on the country's
debt has dropped in recent days. The annual cost to insure $10
million in bonds was about $1.397 million, down from $2.805
million last week.
(Reporting by Daniel Bases, Rodrigo Campos, Joseph Ax in New
York, Hugh Bronstein in Buenos Aires, Jeremy Gaunt in London and
Tom Miles in Geneva; Editing by G Crosse, Chizu Nomiyama,
Meredith Mazzilli, Richard Chang and Mohammad Zargham)