Elliott Bemoans ‘Radio Silence’ as Bonds Soar: Argentina Credit

At a time when billionaire Paul Singer’s Elliott Management Corp. is bemoaning the unwillingness of Argentina to negotiate a debt settlement, the nation’s defaulted bonds are soaring.

The securities have jumped as much as 20 percent to 53 cents on the dollar since the end of February, part of a surge in Argentine assets as the nation takes steps to shore up foreign reserves and repair ties with the International Monetary Fund, Exotix Partners LLP said. Argentine bonds issued in two exchanges since its $95 billion default in 2001 jumped 11.8 percent in that span, five times the emerging-market average.

The gains in the restructured notes are boosting optimism among holders of defaulted debt that they will receive a bigger payout in the event of an accord with Argentina, said Exotix and Caracas Capital Markets. While Elliott said last month that Argentina has responded to efforts to negotiate a resolution to their decade-long legal battle over defaulted debt with “radio silence,” newspaper Ambito Financiero reported Feb. 20 the government is weighing options to solve the dispute.

“The rally after the policy shift helped the untendereds and they should continue to catch up,” Stuart Culverhouse, an economist at Exotix, said by telephone from London. “People are seeing it as offering upside if Argentina reopens.”

Bonds Surge

Under the same terms offered by Argentina in its 2005 and 2010 swaps, current holders of the defaulted debt would receive 65 cents on the dollar, according to Exotix. In the prior restructurings, about 93 percent of the bonds were swapped at about 30 cents on the dollar at the time.

The securities in the restructuring include bonds due in 2017 and 2033 and warrants linked to economic growth. On average, prices for those securities have rallied 4.2 cents on the dollar since the end of February, buoyed by President Cristina Fernandez de Kirchner’s decision to devalue the peso, revamp economic data at the request of the IMF and compensate Repsol SA for Argentina’s seizure of its stake in oil producer YPF SA.

The extra yield investors demand to own Argentine bonds over U.S. Treasuries widened one basis point to 782 basis points at 2:34 p.m. New York time.

Ambito Financiero said Argentina is taking proposals from UBS AG, Goldman Sachs Group Inc. and HSBC Holdings Plc to settle with creditors, which may include swapping the bonds for new notes and buying the untendered debt from the holdouts.

Argentina’s Economy Ministry press official Jesica Rey didn’t respond to a telephone message from Bloomberg News seeking comment.

Legal Case

While Argentina hasn’t reopened the swap, Congress approved a bill in September that lets the government give investors who haven’t tendered a chance to do so. Two months later, Argentina’s Economy Ministry created a restructuring unit to assist and advise on public debt policies and participate in negotiations with creditors.

The moves came after holdout creditors led by Elliott won a case in the U.S. Court of Appeals in August that requires the country to pay owners of the defaulted bonds in full when it makes payments on $24 billion of restructured debt. Argentina is asking the Supreme Court to review the ruling, which roiled its markets on concern the nation would renege again.

The legal dispute has also kept the country from selling bonds overseas since its 2001 default. Elliott says it has $1.7 billion in unpaid judgments.

“‘Radio silence’ is the best description for the current regime’s response to our frequent requests to negotiate a resolution,” New York-based Elliott said in a letter to investors obtained by Bloomberg News. “We have no choice but to pursuing legal actions to enforce our claims.”

Bond Exile

If the lower-court order stands and Argentina obeys it, the defaulted bonds would be worth as much as 150 cents on the dollar, including accrued interest, said Russ Dallen, the head trader at Caracas Capital Markets. If the ruling is overturned, Argentina would still have an incentive to reach an agreement with holdout creditors to regain access to bond markets.

“Argentina needs to re-access international capital markets and the government knows that,” he said in an e-mail.

Hernan Yellati, the head of research at BancTrust & Co., said Argentina probably won’t reopen the swap until a new president takes office after elections next year. He favors Argentina’s restructured dollar bonds due in 2028.

“A payment to the holdouts will take some time,” he said by e-mail. “It’s something that won’t be dealt with until the next government.”

The run-up in the defaulted bond prices indicates investors are becoming optimistic Argentina will reach a settlement, said Caracas Capital’s Dallen.

“Remember that these are worthless at the moment. I mean, they pay no interest and are essentially defaulted, orphaned debt,” he said. “For them to have a bid means that someone thinks that they are going to get at least 50 cents.”

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