Argentine bonds extended losses after U.S. District Court Judge Thomas Griesa said he won’t suspend a ruling that is blocking the nation from paying its debt and threatening to trigger a default by month’s end.
Government dollar bonds due in 2033, whose payments were blocked by the judge on June 30, dropped 1.4 cents to 86.67 cents on the dollar at 4 p.m. in New York, the lowest level since July 7. The yield on the notes rose 0.21 percentage point to 10.05 percent.
Griesa said at a hearing in New York today that the nation doesn’t need a stay on his orders to pay holdout creditors at the same time Argentina pays restructured bonds in order to avert a default. The 83-year-old judge ordered Argentina and holders of defaulted debt from the nation’s 2001 economic crisis, including billionaire Paul Singer’s Elliott Management Corp., to meet “continuously” with court-appointed mediator Daniel Pollack in the coming days to reach a deal. A meeting with Pollack is scheduled for tomorrow.
“The requirement that the two sides meet continuously suggests that they really weren’t negotiating,” Jane Brauer, a debt strategist at Bank of America Corp., said in a telephone interview. “It’s hard to come up with a scenario that will enable Argentina to be current on the bonds on July 30.”
Argentina asked yesterday for a stay in the ruling to continue making payments on its performing bonds while it negotiates. The rejection of the stay means Argentina will default unless it pays defaulted bondholders about $1.5 billion at the same time it pays interest on the 2033 bonds by July 30.
A $539 million payment for bondholders was blocked by Griesa last month and is currently being held in a Bank of New York Mellon Corp. account at the Argentine central bank.
Griesa declined to rule immediately on whether custody banks can route payments to holders of exchange bonds issued outside U.S. jurisdiction and on what BNY Mellon should do with money it was barred from disbursing to bondholders.
Jonathan Blackman, an attorney at Cleary Gottlieb Steen & Hamilton LLP representing Argentina, told Griesa that the nation faces “huge constraints” and that a deal “simply can’t be done by the end of this month.”
Argentine officials say complying with the ruling would trigger claims of about $15 billion from other holdouts and as much as $500 billion from restructured bondholders demanding the same terms.
Argentina has $29.7 billion of international reserves.
Argentina wants the courts to delay the ruling until after Dec. 31, when the Rights Upon Future Offers clause in the restructured bonds expires, so it can continue paying its bonds while it negotiates with holdouts.
Elliott has said it would support a way for Argentina to continue making bond payments if the country advances in talks toward a settlement.
“This is like two cars driving toward each other and neither wanting to hit the brakes first,” said Alejandro Senorino, a fixed-income trader at Buenos Aires-based Advanced Capital Securities SA. “Granting a stay or allowing payments to euro bondholders would have given Argentina breathing room when they need to be pressured to finally negotiate.”
The so-called RUFO clause bans Argentina from voluntarily making a better offer to holdouts than it did in its 2005 and 2010 debt swaps, without extending the same terms to creditors who took losses of about 70 percent in the restructurings.
The case stems from Argentina’s record $95 billion default in 2001. About 92 percent of creditors agreed to restructure their defaulted debt while others refused and sued for better terms in court.
“The scenario of a selective default after July 30 is all the more possible,” Hernan Yellati, the head of research at BancTrust & Co., wrote in a report. “A default will have dire consequences for the Argentine economy.”