Beating Billionaire ‘Pirates’ Triggers Steepest Debt Gain

Billionaire Paul Singer
The setback for billionaire Paul Singer, whose Elliott Management Corp. has led a decade-long effort to recover the full value of the unpaid debt, is assuaging concern Argentina would opt to default after the hedge fund won a string of legal decisions in the past two months. Photographer: Jacob Kepler/Bloomberg

Argentina’s victories against billionaire Paul Singer in courts from Manhattan to Hamburg are propelling the nation’s bonds to the biggest return in emerging markets.

Argentine dollar debt has gained 10.2 percent on average this month, 18 times the advance for 59 developing countries tracked by JPMorgan Chase & Co.’s EMBI Global index. The notes have surged since Argentina persuaded a U.S. appeals court in New York to delay a ruling that would have forced it to pay Singer and other so-called holdout creditors from its $95 billion default or risk defaulting on its current bondholders.

The setback for Singer, whose Elliott Management Corp. has led a decade-long effort to recover the full value of the unpaid debt, is assuaging concern Argentina would opt to default after the hedge fund won a string of legal decisions in the past two months. Last week, a United Nations court in Hamburg ordered the release of an Argentine navy ship that Singer seized in October. That prompted Economy Minister Hernan Lorenzino to hail the ruling as a win over “financial pirates.”

“Every headline out of October was a win for Elliott and a loss for Argentina, and you’ve certainly seen a reversal of tides in that respect,” Ray Zucaro, who helps manage about $240 million of emerging-market debt at SW Asset Management LLC, said by telephone from Newport Beach, California. “Now, it’s a little bit more balanced.”

Set Sail

Peter Truell, a spokesman for New York-based Elliott, and Norma Madeo, a spokeswoman at the Economy Ministry, declined to comment on bond-market trading.

ARA Libertad, the three-mast frigate, left the port of Tema yesterday, Lawrence Atumbine, a spokesman for Ghana Ports and Harbours Authority, said in a telephone interview. NML Capital Ltd., the unit of Elliott that won the court order to seize the ship, had asked for a $20 million bond to release it, according to legal correspondence obtained by Bloomberg.

Argentina will “keep defending itself from the financial pirates,” Lorenzino said in comments posted on his Twitter account on Dec. 15, minutes after the UN ruling was announced.

The ship will arrive on Jan. 9 in Mar del Plata port in Argentina, where it will stay for tourists to visit, President Cristina Fernandez de Kirchner said on Dec. 18.

The Ghanian port lost $7.6 million in revenue in the 76 days the ship occupied prime berth, Jacob Adorkor, acting port director, told Accra-based newspaper Daily Graphic.

Legal Umbrella

The extra yield investors demand to hold Argentine government dollar debt instead of Treasuries narrowed eight basis points to 991 basis points at 4:00 p.m. in New York, according to JPMorgan. The spread fell yesterday to 1,000 basis points, the narrowest since Oct. 26.

The dollar bond rally was triggered after a U.S. appeals court delayed a ruling on Nov. 28 requiring Argentina pay $1.33 billion to the holdouts this month. The next day, government bonds sold under New York law, which were most at risk from the court case, rebounded 12 percent on average, the biggest-ever single-day gain, according to JPMorgan data.

The appeals court will hear oral arguments on Feb. 27.

While Argentine dollar bonds due 2017 have yet to recover their price of 100 cents on the dollar before the appeals court upheld Griesa’s ruling on Oct. 26, the notes have rebounded to 87.28 cents from a low of 68.25 cents.

The New York law bond yields 0.2 percentage point less than similar-maturity notes sold under Argentine law. The gap was as wide as 5.33 percentage points on June 13, a signal to Buenos Aires-based brokerage Puente Hermanos Sociedad de Bolsa SA that there’s still more room for the notes to appreciate.

Harshest Deal

The Economy Ministry said Nov. 26 that a payment formula offering holdout creditors the same terms as investors who accepted a debt swap in 2010, rather than 100 cents on the dollar as Griesa had ruled, would be a “remedy” that’s consistent with Argentine law, according to a court filing.

“A good bet today could be to go for New York law bonds, which still have a ways to go in recovering,” Brian Joseph, the head of trading at Puente Hermanos, said in a telephone interview. “Argentina has demonstrated interest in complying with the court and reopening the exchange, which we think could lead to a favorable decision.”

Singer’s NML filed its first lawsuit against Argentina in 2003, two years before Nestor Kirchner, Fernandez’s husband and predecessor, offered investors 30 cents on the dollar for the defaulted bonds in the harshest government debt restructuring since World War II. Singer rejected the exchange, as well as the second one in 2010.

‘Goes Rogue’

“Those of us who don’t choose to pursue that route recognize the value of having somebody who will intervene when a country goes rogue,” Hans Humes, president of Greylock Capital Management LLC, said in a Dec. 18 interview with Deirdre Bolton on Bloomberg Television’s “Money Moves.” “Contractually, he’s due the money. He got a judgment. They have the full rights to $1.3 billion under U.S. law.”

The bond gains have given investors an opportunity to cash out before the appeals court convenes in February, when the risk of an Argentine default could resurface, according to Jorge Piedrahita, chief executive officer at Torino Capital LLC.

“I would definitely be underweight,” Piedrahita said in a telephone interview from New York. “Griesa’s ruling is far from over -- you just took a break, a three months break, but come February everyone’s going to be focused on that again.”

The cost of protecting $10 million of Argentine government debt against default for five years, including an upfront payment demanded by sellers of the insurance, remains the highest in the world.

Default Protection

The credit-default swaps fell 19 basis points to 1,377 at 9:00 p.m. in London, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Warrants tied to economic growth rose 0.25 cent to 7.25 cents today. The peso weakened 0.1 percent to 4.8990 per dollar.

The appeals court decision to delay Griesa’s orders has enabled the Argentine government to make more than $3.5 billion of interest payments to investors this month.

With yields that are more than double the average 4.53 percent in emerging markets, Argentina’s bonds are still a buy to Joseph at Puente Hermanos.

“The prices for Argentine assets are extremely attractive,” he said. “We don’t think they’ll recover their total value until after the definitive final ruling, but these yields are too appealing.”

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