Argentina is challenging U.S. Courts to enforce a ruling that will block $539 million of an interest payment and trigger a new bond default.
Economy Minister Axel Kicillof said the South American nation complied with its foreign debt obligations yesterday, depositing the funds with trustee Bank of New York Mellon Corp. for holders of restructured bonds when an interest payment comes due June 30. Court orders prevent the bank from passing along that money unless it gives evidence Argentina is paying holders of its defaulted bonds simultaneously.
U.S. District Judge Thomas Griesa set a hearing for today in Manhattan after attorneys for hedge fund Elliott Management Corp. asked him to hold the country in contempt for disobeying his orders and reminded the trustee of its obligations. Argentine President Cristina Fernandez de Kirchner said last week that she wants to negotiate with the holdouts, who have won rulings to be paid $1.5 billion for their defaulted securities after rejecting debt restructurings in 2005 and 2010.
“Putting the money in New York as if to put the ball in their court seems risky,” Joaquin Almeyra, a Miami-based fixed-income trader at Bulltick Capital Markets, said. “They’re disrespecting both the institutions and the rules of the game, but the reality is the market only cares about getting paid, and the money to do so is in the account.”
While the government has spent a decade battling holdout creditors from its $95 billion default in 2001, the issue is coming to a head now after the U.S. Supreme Court on June 16 left intact a ruling that requires the country to pay the holdouts in full when it makes payments on restructured bonds.
Restructured dollar bonds due 2033 fell for a second day, retreating 0.7 cent to 84.54 cents on the dollar as of 9:36 a.m. in New York. The extra yield on Argentine bonds over U.S. Treasuries widened 0.08 percentage point, the most in emerging markets.
Griesa yesterday also denied Argentina’s request for a delay, which Kicillof had said would make the negotiations less complex. Elliott, run by billionaire Paul Singer, earlier this week said it would consider “a consensual accommodation” for Argentina if talks “have made good progress.”
Last year, BNY Mellon had said the order would force it to violate contractual obligations to the investors. The appeals court said that if there were uncertainty as to whether and how the injunction applied, “the doors of the district court obviously remain open.”
Argentina deposited the equivalent of $832 million for the June 30 debt payments, with $539 million going into BNY Mellon’s account at the central bank designated for international bonds. In total, including peso payments, more than $1 billion was set aside to pay the debt.
The government said in a legal statement today sent to bondholders that it has no more obligations to them and that it’s BNY Mellon’s duty to deliver the funds.
“I expect that any bank would take the safe course and ask for guidance,” said Bruce Wolfson, an attorney at Bingham McCutchen LLP in New York who has been following the case.
Ron Gruendl, a spokesman for BNY Mellon, declined to comment.
The court may seize the funds and divide it to pay both restructured bondholders and holdouts, according to Carlos Abadi, chief executive officer of New York-based investment bank ACGM Inc.
Argentina may be trying to ease the way for a deal with the holdouts, according to Luis Caputo, a Buenos Aires-based money manager at Noctua International LLC.
“They know this money is going to get embargoed, so it’s like giving the holdouts a cash advance,” Caputo said. “The rhetoric doesn’t matter. What matters is what they do, and with this they’re giving them a significant cash advance.”
With the interest payment due at the end of this month, the securities in question will be in default if a payment isn’t made by July 30.
“Conventional wisdom is that this gets resolved before July 30,” said Marco Santamaria, a New York-based money manager at AllianceBernstein, which oversees $25 billion of emerging-market debt. “This may be the opportunity for Argentina to finally put to bed its issues with all external creditors. How that happens, given all the legal complexities, is an open question.”