Argentina’s Bond Plan Halted After Judge Issues Bank Order

Argentina’s plan to sell at least $2 billion in bonds came to a halt after a U.S. judge cited the banks managing the sale for failing to comply with subpoenas, people with knowledge of the matter said.

JPMorgan Chase & Co. and Deutsche Bank AG stopped soliciting bids on the securities and told investors the plan was suspended, according to three people familiar with the matter, who asked not to be identified because the plans were private.

Argentina was attempting to raise debt financing after selling less than 10 percent of the $3 billion in bonds it offered in December. The country, which needs the money to help pay down more than $6 billion in debt maturing this year, has been hampered from tapping global debt markets by a decade-long legal battle with NML Capital, a hedge fund controlled by billionaire Paul Singer’s Elliott Capital Management.

“This complicates things for the government because part of their strategy was to do a few bond sales to help them get to elections comfortably,” Daniel Kerner, an analyst at Eurasia Group, said in a telephone interview.

Argentina is blocked by U.S. courts from making payments on international debt until the nation settles with NML, which holds defaulted sovereign bonds from 2001. The injunction affects debt that was issued abroad during debt restructurings in 2005 and 2010, the terms of which NML rejected.

Argentine Default

A second Argentine default in 13 years was triggered in July when the nation refused to pay the holdouts.

“This is a serious problem for the government because the whole world assumed that these new bonds couldn’t be affected by the injunction because they’re local-law,” said Eurasia’s Kerner. “It seems like an enormous stretch that these bonds would be affected, but we’ll see just how far the reach of the courts and the holdouts is.”

U.S. District Judge Thomas Griesa said the banks failed to respond to a Feb. 9 subpoena, which was issued amid speculation that Argentina might try to sell bonds. He instructed the banks to produce documents about the bond issue by noon Thursday, according to a copy of the order obtained by Bloomberg News.

The judge also ordered the banks to produce witnesses to testify at a deposition at 3 p.m. Thursday in New York.

Plan Suspension

The banks cited Griesa’s order for suspending the plans, two of the people said. His orders came late Wednesday after the banks began to solicit bids from investors for the new bonds.

The efforts to sell the bonds weren’t official, and Argentina is considering different proposals from banks, according to an Economy Ministry press official who asked not to be named.

Veronica Espinosa, a spokeswoman for JPMorgan, and Kerrie McHugh, a spokeswoman for Deutsche Bank, declined to comment.

“We are dismayed that JPMorgan and Deutsche Bank are participating in the schemes of an international scofflaw, schemes which we believe are an attempt to evade the court-ordered enforcement of bondholders’ rights,” NML said Wednesday in an e-mailed statement.

The 2024 bonds climbed 0.49 cent on the dollar at 2:06 p.m. New York time to 105.02 cents after falling Wednesday the most since Dec. 16.

In December, the nation sold about $286 million of the securities due 2024 to investors, less than 10 percent of its target. At the time, Argentina refused to use international banks to manage the sale, a move that Economy Minister Axel Kicillof said saved the country $100 million in fees.

Investors have become increasingly optimistic that a change in government will result in Argentina’s resolving the legal battle with NML and allow the nation to resume making bond payments and issuing debt abroad.

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