Argentina Credit Swaps Auction to Include Disputed Yen Bonds

An auction to settle outstanding credit-default swaps triggered by Argentina’s default will include two yen-denominated bonds that may increase payouts, according to the International Swaps & Derivatives Association.

A 15-member panel of dealers and investors voted to include the bonds, ISDA said on its website. Pacific Investment Management Co. was the only member to vote against including the notes on the final list for the auction, which will be held Sept. 3.

The determinations committee delayed the auction earlier this week after receiving a challenge on the inclusion of the bonds that trade cheaper than most other obligations from the country. More than $800 million of swaps bets on Argentina’s default will be settled after the panel ruled earlier this month that a failure-to-pay credit event had occurred.

The bonds in question are yen-denominated notes coming due in 2033 and 2038 with more than $250 million outstanding, according to data compiled by Bloomberg. These notes were included in a list of so-called “deliverable obligations” after the ISDA committee received the documentation by its Aug. 15 deadline.

Inclusion of the bonds in the list may bring down the recovery prices for the debt obligations, which in turn increases payout to creditors who bought protection, Konstantin Hammerschmidt, a money manager at XAIA Investment GmbH, said yesterday.

The CDS was triggered per the group’s ruling after an interest payment made by Argentina to the bond trustee wasn’t passed on to note holders before a July 30 deadline. That followed a court ruling barring the transfer of money until a dispute with hedge funds led by Elliott Management Corp. is resolved.

The auction process sets a value for the defaulted bonds, which is then used to determine payouts for swaps holders.

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