Argentine Bonds Decline as U.S. Court Favors Holdouts

Argentina’s overseas bonds dropped after a U.S. appeals court upheld a decision forcing the nation to pay holders of defaulted bonds in full.

Argentina’s restructured dollar bonds due in 2033 fell 1.12 cents to 61.05 cents on the dollar at 3:27 p.m. in New York after earlier rising to 65.10 cents, according to data compiled by Bloomberg. Yields on the securities climbed 0.50 percentage point to 14.72 percent. The extra yield investors demand to own Argentine bonds over U.S. Treasuries rose 0.43 percentage point to 10.66 points, according to JPMorgan Chase & Co. data.

Three judges unanimously rejected Argentina’s appeal of a ruling that would force it to pay $1.33 billion to holders of defaulted bonds, led by hedge fund Elliott Management Corp., when it makes payments on its restructured debt. Argentina has vowed never to repay holders of defaulted bonds in full. The effect of the ruling will be delayed while the South American country’s government asks the U.S. Supreme Court to review the case and until the high court decides to accept the request.

“Bonds had recovered in the last few weeks with speculation we wouldn’t get news from the courts for a while,” Joaquin Almeyra, a fixed-income trader at Bulltick Capital Markets, said by phone from Miami. “The mood turned when we saw the decision. Now a negative outcome in the case seems closer and more likely.”

Argentina defaulted on a record $95 billion of foreign debt in 2001. Holders of about 91 percent of the bonds agreed to take new exchange bonds in 2005 and 2010 at a deep discount.

Default Swaps

Argentina argued that a ruling in the defaulted bondholders’ favor would violate its sovereignty and expose it to a new financial crisis. Bank of New York Mellon Corp., the indenture trustee for restructured bonds, said it shouldn’t be forced to halt payments to holders of those bonds if Argentina refused to comply with a court order to pay the defaulted bonds.

The court ruled that Bank of New York and other institutions involved in the restructured-bond payments can’t act in concert with Argentina to violate his orders.

“What the consequences predicted by Argentina have in common is that they are speculative, hyperbolic and almost entirely of the Republic’s own making,” U.S. Circuit Judge Barrington Parker wrote in today’s opinion.

Holders of the defaulted bonds asked the appeals court to uphold rulings by U.S. District Judge Thomas Griesa in Manhattan.

‘Persistent Violation’

“Today’s unanimous, well-reasoned decision appropriately condemns Argentina’s persistent violation of its obligations and its extraordinary defiance of the laws of the United States and the orders of U.S. courts,” Elliott Management’s attorney Theodore Olson said in an e-mailed statement. “It confirms that Argentina is not above the law.”

Argentine notes due in 2033 earlier jumped as much as 1.35 cents on speculation investors will continue to receive payments while the high court makes its decision. The South American nation’s local law bonds due in 2017, which aren’t affected by the court ruling, rallied.

Argentina’s five-year credit-default swaps, contracts that protect holders of the nation’s debt against non-payment, jumped 201 basis points to 2,483 basis points at noon in New York, the highest on a closing basis since July 16, according to data compiled by CMA Ltd. The nation’s sovereign debt is the most expensive to protect in the world.

Supreme Court

The Supreme Court’s procedures indicate justices won’t say until at least January whether they will review today’s decision. Under the high court’s rules, Argentina has 90 days to seek review of today’s decision, and the bondholders would have 30 days to file a response. Court officials would then schedule the appeal to be considered at one of the justices’ private conferences.

If both sides take the maximum amount of time, or something close to it, the case wouldn’t reach the justices until their Jan. 10 conference at the earliest. The court’s last scheduled conference this year is Dec. 13.

A group of restructured-bond holders that have backed Argentina in the case, including BlackRock Inc. and AllianceBernstein LP, said in an e-mailed statement that the decision failed to acknowledge their “constitutionally protected property rights.”

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