S&P Says Argentina Defaults, What Does It Mean?

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July 30 (Bloomberg) -- Credit Suisse's Casey Reckman and Bloomberg's Sheelah Kolhatkar and Mike McKee on Argentina’s credit rating being cut to selective default by Standard & Poor’s. They speak with Cory Johnson on "Street Smart." (Source: Bloomberg)

It is not good news, that much is clear.

There had been optimism that the two sides would reach an agreement, because for the first time, represented as of these hedge fund holdout bond investors and the argentine government got together last night in the law office of the mediator mediating the dispute.

And they spent quite a few hours together yesterday.

The economy rolled in sort of late in the afternoon, which surprises everybody, but they did have a surprising schedule.

I wonder what the trading has been like.

We have seen a rowley in argentine assets because of the prospect for some kind of settlement.

And also, the signal of the government showing up was positive in terms of argentina reaching a deal, hopefully before default.

But even if there is default, it will perhaps be a shorter lived default.

What does it mean in terms of research, so you can understand what is going on?

It is really two parties in a closed-door room.

But today, there was a lot of waiting.

How long would they go?

When when they come out?

Talking to market participants as well as locals.

A group of banks was there to help reach a settlement.

Part of it is talking to contacts that are involved with that too filled -- figure out what the real story is.

Mike mckee, what does this mean if they cannot reach a deal tonight?

What does it mean for other assets around, not just these assets in question?

It probably doesn't mean a whole lot.

The real question would be, what do creditors of default swaps to?

There are only about 2500 of them with options on argentina.

If they ask the international swaps and derivatives association for a default ruling and demand they get paid, it will be an interesting question.

This should be cured within 24 to 48 hours.

It will be interesting if they do reach an agreement, because then they will re-rate whatever new bonds might come out of it, or lift that rating.

They don't rate to the discounted bonds that were given out in the restructuring.

It may not even be an issue.

Once the holdouts get paid.

What have you seen in the trading?

Has it been crazy?

It has been relatively volatile.

And in particular, getting that default that he was just talking about, is that a difficult rendering to get, the call?

The decision is ultimately made by a committee to the international swaps and derivatives association.

This may be a little less clear-cut than others because we are dealing with multiple jurisdictions, legal jurisdictions.

That has got to be torture for the cds holders who have the vet right, but cannot get the innovation to tag.

If no one gets paid at the end of the day, it will be more straightforward than, for example, some bonds getting paid and others not.

What is next?

I think everyone is looking at automatic revision payments in some of these bonds.

For example, if argentina defaults on this one set of bonds that has interest you on the end of the day today, that could potentially trigger across repayment revision in other bonds.

They could be on the hook for billions of dollars, up to $29 billion worth of other bonds.

And that is one of argentina's arguments throughout this.

They need more time.

It could be a devastating ripple effect of debt obligation that they suddenly have to repay.

Other bondholders could demand repayment of everything, interest, principal.

The cds guys should be thrilled with the credit default swaps bike.

-- spike.

It is also about the potential for the celebration.

But in the context, if it is secured within 60 days, then less of a risk.

What is the contagion risk here with the development of this day, mike mckee?

Not a lot outside of argentina.

There are very few bondholders of argentina sovereign debt at this point be on hedge funds.

There is not going to be a major affect.

Most of the of the countries in the region are operating with a relatively clean bond ratings.

Ecuador got off a deal a week or so ago that was just fine.

It does not seem to be a major issue.

In the future, the causes that have argentina tripled, the equal treatment clause, most of those have been dropped from bond contracts.

Now you have collection clauses that can be forced into a deal, or force a cram down on them.

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


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