Argentina’s Defaulted Bonds From 2001 Plunge as Payout Odds Fall

Bonds left over from Argentina’s $95 billion default in 2001 are falling on speculation that chances are fading for a settlement to compensate holders of the debt who sued for full repayment.

Bid prices on the untendered dollar-denominated securities have fallen about 23 cents to 100 cents on the dollar since July 30, when the nation defaulted for a second time in 13 years, according to prices from Seaport Group LLC. The securities extended losses after Argentina announced Aug. 19 plans to make payments locally on restructured debt to get around a U.S. judge’s order that it pay $1.5 billion to the holdout creditors before servicing the debt.

“Untendered debt prices have weakened since the swap announcement as the principal thesis for their purchase -- a near term settlement at or near the holdout creditors’ award -- has been negated,” Michael Roche, an emerging-market bond strategist at Seaport, said in an e-mailed response to questions. The swap plan is “leaving recent buyers pondering their move and removing new buyers’ interest.”

Argentina said it will pay the exchanged bonds through a local account, which the judge in the case, Thomas Griesa, has said would violate U.S. law. The proposal, which needs congressional approval, includes a plan to swap holdouts’ defaulted bonds on the same terms as the previous restructurings they’ve twice rejected.

Court Hearing

Griesa set an emergency hearing for 3 p.m. today in New York after lawyers representing hedge fund NML Capital and other holders of untendered bonds called the nation’s plan a “grave affront” to his orders and asked him to consider contempt sanctions against the South American nation.

The nation’s officials have said they can’t improve restructuring terms for the holdouts without extending the same offer to investors who agreed to the 2005 and 2010 swaps, due to a contractual provision in the new securities. That provision expires at the end of the year.

Griesa ordered the nation to pay the holdouts in full, which would be worth about three times the face value of their claim, according to Roche. A swap, on the other hand, would be worth about 89 percent of face value, he said.

Before it's here, it's on the Bloomberg Terminal.