Argentina Defaults According to S&P: What Now?

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July 30 (Bloomberg) -- Argentina’s credit rating was cut to selective default by Standard & Poor’s as settlement talks with U.S. hedge funds led by Paul Singer’s Elliott Management continued past the country’s grace period. Bloomberg's Trish Regan, Matt Miller and Mike McKee have more on "Street Smart." (Source: Bloomberg)

Thank you for having me.

They have called it a selected default and want to go to matt miller who has all the details first.

A selected default because they are talking only about bonds that are going to be due in 2033. we'll know the situation.

The hedge fund elliott management corp.

Has been negotiating with argentina about debt that it has been owed for a long time but recently the court finally said argentina has to pay it back in full.

It never negotiated the debt previously but there was a big group of holdouts.

The majority of the holders had renegotiated that debt, restructured it long ago and they were being paid regularly.

Now a judge has ruled that argentina cannot pay those renegotiated debt payments are the restructured debt payments unless it also pays elliott the amount they owe in full and all of the other holdouts.

With this ruling, they missed the $539 million payment that argentina had until today to make to elliott or come to an agreement with elliott.

The finance minister had been in talks with paul singer of alien management corp.

And they did not come to an agreement so they have blown past this deadline.

Now standard & poor's considers them in default for this debt due in 2033 why it is a select the debt and not altogether still making debt payments on other bonds issued but not on these.

Economics editor michael mckee joining us here as well.

Matt, stay with me.

Selected default, is this in any way better than what could have been the outcome?

Not necessarily.

If argentina does not find a way to cure this very quickly -- that is still a possibility because the meetings are still going on, there is a clause in most of these bond contracts where those who hold the restructured bonds can immediately demand full payment.

Argentina could be on the hook for a lot now that the fault has been declared.

If they do reach an agreement in the meantime, that would obviate that but that is the threat hanging over argentina right now.

It leaves investors in a pretty poor spot.

For the moment.

It's an odd situation.

Argentina is in a different time zone than the u.s. and the s and p working on the close of u.s. markets and up the same time, when bank of new york mellon day ended because they are holding the money to pay the debt but if they were to come up with a settlement tomorrow, this all could be reversed.

It's not clear exactly what would happen.

The biggest question right now is if you hold a credit default swaps argentina and the fault has been declared, you go to the international swaps and derivatives association and have them rule you get paid.

What do they do?

Do they have to wait and see whether or not this goes through and if there is an actual defaults.

Matt, i'm reading from bloomberg news that they spoke with a senior latin american economist from goldman sachs who is telling bloomberg saxe there is an expectation that a deal with holdouts would still be worked out.

Argentina's default is expected to be short lived at this point and should not have any major implications for the country.

You saw today this debt surge in price.

Even though they were nearing this deadline without an agreement, the debt was up $.10 to $.9577 on the $1. investors expect some sort of agreement.

On the one hand, select the debt is very bad for the reasons that mike points out.

It can trigger clauses allowing all of the debt holders to call in those.

This is something we have been following very closely.

Everyone has been watching the court battles.

We all know to some degree where some things stand and that is why with industry analysts saying is could be resolved very soon, the debt has not taken an absolute guys.

The real fear is you could see some kind of a contagion as a result of this.

Might that be the case?

Will other emerging markets struggle because of this selected default rating on argentina?

I've spoken to a number of sovereign analysts who follow argentina in particular and they say no.

Very few bonds are held by anybody other than hedge funds at this point in very few have this same sort of problem argentina does with their economy.

Ecuador went to market last week and sold out its sovereign offering without any problems in new york.

No issue -- no significant issue there, it seems, at this point.

The clauses that got them in trouble have largely been dropped from bond contracts.

As long as people are making their payments, it does not seem to be the issue.

The question going forward, can argentina reach a deal?

It looks like they don't want to deal with the holdouts, but they may do some sort of ledger debate are they by the bank debt and go to the judge and say let us pay everyone else in the default is cured.

We pay the banks in the long run.

It's a complicated process.

It might work up a holdout gets their whole amount.

Let me ask you about the timing.

You mentioned about the time difference between us and argentina, a sense waiting for the u.s. markets to close before this was announced.

In terms of a deal that could potentially be work out, how long might it take?

They are obviously working against the gun with the s and p rating downgrade hanging over them.

There was a feeling that they could get it done today if all parties agreed but it has not happened.

There seems to be a sticking point.

From what i understand, the holdouts are still concerned about making sure they actually do get paid before they reach any type of agreement with argentina.

They do not trust the argentines because they have held off so long.

Just to reiterate, argentina

This text has been automatically generated. It may not be 100% accurate.


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