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Argentine Bonds Sinking as Country Loses Court Appeal

Argentine Bonds Sink as Country Loses Defaulted Debt Case Appeal
100 Argentine pesos notes are displayed for a photograph in Buenos Aires, Argentina. Photographer: Diego Giudice/Bloomberg

Argentine bonds sank the most in four months after the country lost a bid to reverse U.S. court rulings that may help creditors including hedge fund Elliott Management Corp. collect $1.4 billion on defaulted debt.

The government’s dollar-denominated notes due 2015 dropped 4.99 cents, the biggest slide since June 11, to 84.55 cents on the dollar, at 5 p.m. New York time. Yields jumped 2.29 percentage points to 13.82 percent, the highest level since July 27, according to data compiled by Bloomberg.

The U.S. Appeals Court in New York ruled today that Argentina can’t discriminate against holders of the defaulted bonds in favor of holders of the securities it restructured following a record sovereign default in 2001.

“It’s huge,” Diego Ferro, who helps oversee more than $500 million at Greylock Capital Management LLC in New York, said in a telephone interview. “Argentina’s getting less and less room to maneuver. Finally the U.S. courts are saying, ‘stop and just pay.’”

Argentina will appeal the ruling to the U.S. Supreme Court, state news agency Telam reported, citing Finance Secretary Adrian Cosentino. A press official at the Economy Ministry didn’t return telephone calls made by Bloomberg News seeking comment.

The cost of protecting Argentine debt against non-payment for five years with credit-default swaps soared 3.30 percentage points to 12.89 percent, data compiled by Bloomberg show. The increase was the biggest among all government debt credit-default swap contracts tracked by Bloomberg.

Payment Formula

Warrants tied to gross domestic product sank 1.2 cents, the biggest loss since Dec. 13, to 11.23 cents on the dollar.

“It’s not good news for performing debt,” said Alberto Bernal, head of fixed-income research at Bulltick Capital Markets in Miami. “If the holdouts get their case, the capacity to pay that debt could be reduced since Argentina would need to pay holdouts some of what the country owes them.”

A three-judge panel upheld orders issued by U.S. District Judge Thomas Griesa in Manhattan. The appeals court sent the case back to Griesa’s court to clarify how a payment formula set by the judge is intended to work and to determine how the orders apply to intermediary banks and other third parties.

`Failing Miserably'

Argentina, which is rated B by Standard & Poor’s, or five levels below investment grade, claims that upholding Griesa’s rulings would undermine the debt agreements, spark a financial crisis in the country and make it impossible for other nations to restructure their debt.

“The government is failing miserably in this process,” Ferro said. Argentina is “running out of alternatives to push it forward.”

Peter Truell, a spokesman for Elliott Management, declined to comment.

The government hasn’t sold bonds oversees since the 2001 default as it fights the lawsuits from the holdout creditors, who rejected restructuring offers in 2005 and 2010 that paid about 30 cents on the dollar. The restructurings were accepted by holders of about 92 percent of all defaulted debt.

Seized Ship

The ruling comes three weeks after Elliott Management’s NML Capital Fund won a court order to detain an Argentine navy vessel in Ghana as part of its effort to gain repayment on the defaulted securities. Lawyers for NML wrote in an Oct. 5 letter that the fund would authorize the navy ship to leave the port of Tema if the country posted a $20 million bond, according to legal correspondence obtained by Bloomberg.

President Cristina Fernandez de Kirchner, whose predecessor and late husband Nestor Kirchner oversaw the 2005 restructuring, ordered on Oct. 20 the evacuation of sailors on board the three-mast frigate.

“As long as I’m president, you can take our frigate, but nobody is going to take the liberty, the sovereignty and dignity of this nation,” Fernandez said in an Oct. 22 speech.

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