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October 21, 2014
Friday, June 27, 2014

Throwing the ball into Judge Griesa’s court

Economy Minister Axel Kicillof announces the government’s deposit to pay restructured bondholders, flanked by Cabinet Chief Jorge Capitanich (l) and Legal and Technical Secretary Carlos Zannini (r).
An hour after announcement, Griesa rejects stay request, schedules hearing for today

President Cristina Fernández de Kirchner’s administration yesterday deposited the next payment needed to avoid a default on its restructured bonds, Economy Minister Axel Kicillof announced early yesterday morning, although a US federal court decided not to let the payment go through.

Both moves increased the stakes in the ongoing 12-year legal chess game between the country and creditors who refused to accept the debt restructurings, and have won victories in US courts demanding the full value of defaulted bonds.

“Not paying while having the resources and forcing a voluntary default is something that is not contemplated in Argentine law,” Kicillof said. “It would be a clear violation of the debt prospectus.”

US Judge Thomas Griesa later denied Argentina’s request to extend deadlines to repay debt to creditors the government has often referred to as “vultures.” He scheduled a hearing for the parties to elaborate on their stances for today at 11:30am.

In order to pay holders of the country’s restructured bonds without being in contempt of court, Argentina said it needed a stay to be issued by US District Judge Thomas Griesa in New York that would have temporarily suspended his order for the country to pay holdouts simultaneously.

Griesa denied Argentina’s stay request about an hour after Kicillof said the deposit had been made, but the government still has another month to strike a deal with the hedge funds, which are led by Paul Singer’s NML Capital, a subsidiary of Elliot Management.

The federal judge said Argentina’s request was “not appropriate” because the requirement to pay US hedge funds involved in the Manhattan litigation was only triggered if Argentina makes a payment to bondholders who exchanged their bonds for bonds of lesser value in the years after Argentina’s economy collapsed in 2001.

Later in the evening, Judge Griesa responded affirmatively to a request by Dechert, the firm representing the holdouts, to “convene a hearing as soon as is practicable to address this violation of this Court’s order.”

“This is a brazen step in violation of this Court’s orders and it warrants a swift and decisive response,” the letter read, making reference to Kicillof’s speech at the United Nations in New York on Wednesday, his remarks at yesterday’s news conference and the governement’s official news release on the matter.

Griesa scheduled a hearing for the parties to elaborate on their stances for today at 11.30am Buenos Aires time.

Signed by Robert Cohen, the letter added that “Minister Kicillof said Your Honor’s rulings place Argentina in an absurd position and stated further that Your Honor is biased,” also defining the government’s claim that the funds “had never wanted to negotiate” as false.

“We affirm our commitment to honour our debt to all creditors,” Kicillof had affirmed at the news conference yesterday morning, calling for fair conditions under which to negotiate with the holdouts, without the lurking threat of embargos.

Kicillof said Argentina owes a US$832 million coupon payment on restructured bonds on Monday.

“Of that total, US$539 million was deposited in the accounts ... of the Bank of New York Mellon at the Central Bank of Argentina,” Kicillof said, adding that the rest of the US$832 million had been deposited by way of other financial institutions.

Argentina’s debt servicing costs are set to more than double in 2015.

A deal with NML Capital and its allied funds would prevent a new default, but would likely imply a flood of litigation not only by some of the restructured bondholders seeking the same payment as the holdouts, but also from those who did not enter the debt swaps and were awaiting the outcome of NML’s litigation to take action.

Argentina will have the month of July to negotiate with its holdout creditors before falling into technical default. The payment for which the country made a deposit yesterday is due on Monday, but with that payment blocked by the courts, Buenos Aires will have a 30-day grace period to strike a deal with holdout creditors and pay both groups.

Payment crunch

Central Bank reserves, which fell 30 percent last year but which have remained steady this year and recently edged above the US$29 billion mark, are expected to fall in the second half of 2014 after soy is harvested and sold.

But Argentina’s financial markets slipped only slightly on the news of Griesa’s rejection, as investors bet that the country will use the 30-day grace period to strike a deal with the holdouts.

Griesa has ordered Argentina to pay the holdouts US$1.33 billion plus accrued interest, at the same time it pays the 93 percent of bondholders who accepted the 2005 and 2010 restructurings. Argentina had asked him for a stay on that order in order to allow Monday’s coupon payment to go through.

The restructured bonds, stemming from Argentina’s US$100 billion 2002 default, offer less than a third of the original value of the debt. The holdouts have sued in the US courts to be repaid 100 cents on the dollar.

The debt drama is being played out in New York this week, where Griesa’s order includes an injunction against Bank of New York Mellon and other payment agents from transferring money from Argentina to its restructured bondholders.

Also in Manhattan, lawyers for the holdouts and Argentina raced against the clock to clinch a deal for settling the seven percent of defaulted bonds that were not restructured.

Herald with Reuters

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