November 27, 2014
Kicillof: ‘there’s no default, we’ve paid’
Back in Argentina after the failed negotiations with hedge funds, Economy Minister Axel Kicillof said yesterday the country didn’t default its debt since it has already sent the money and welcomed an agreement between the private sector and the holdouts since it wouldn’t violate the RUFO clause. Nevertheless, he criticized the failed proposal by the Argentine private banks association (Adeba).
Creditor agencies didn’t see things in the same light as Kicillof. Fitch yesterday downgraded the republic to a “restrictive default” and DBRS to a “selective default,” both terms meaning that Argentina has defaulted on one or more of its financial commitments but continues to meet others. This happened only one day after Standard & Poor’s also issued a selective default.
“Argentina isn’t against an agreement between private (sectors) and the holdouts. But we can’t break the law by giving money from the state to that deal because we would be violating the RUFO clause,” Kicillof said at a press conference in the Economy Ministry. “From an economic point of view, such a deal is practicable since many privates have incentives for it. All privates that want to chip in are welcomed.”
Kicillof criticized ADEBA’s proposal, which intended to buy the holdouts’ defaulted bonds. ADEBA’s offer was said to consist of purchasing the entirety of the US$1.33 billion owed to the “vulture funds,” with an initial US$250 million in cash, and the rest in installments.
“I found out this morning that banks were close to putting their money to purchase the debt. But they intended to secure those funds with SEDESA guarantee fund in case the money wasn’t given back,” Kicillof said, mentioning the fund created in 1995 with the “deposits of the people” after the Tequila crisis. “It’s OK if they think such deal is convenient but they have to use their own money.”
Kicillof said he didn’t see “any generosity” in the banks due to the deal offered since they “didn’t imply any risks” because of their intention of securing funds through SEDESA. At the same time, he welcomed “all private (sectors) that want to genuinely contribute” and said there are private sectors “that would make money if they make a payment” to the holdouts.
Not a default
Kicillof insisted that the government has not defaulted because it deposited an interest payment on one of its bonds due in 2033 that is governed by New York law. US District Judge Thomas Griesa said in June when the payment was made that it was illegal because it violated his ruling.
Back then, Griesa deemed the US$539 million deposit with the Bank of New York Mellon, Argentina’s trustee bank, was illegal because it did not include a concurrent court-ordered payment of US$1.33 billion plus accrued interest to the holdout investors.
The Economy minister warned that the country could bring more lawsuits to challenge the contention that it is in default. Bondholders who participated in the two prior restructurings of the 2001 default now have to decide whether or not to seek immediate full payment of principal and interest on their restructured debt, a process known as acceleration.
This process requires 25 percent of the bondholders on each of 16 bonds issued in the 2005 and 2010 restructurings to ask BNY Mellon for a formal decision on default. The bank has then 60 days to decide if it takes the case or not. If it does, the government would appeal, Kicillof anticipated.
“Let’s suppose that the bank considers it as a default. Argentina is sure that this is not a default so it will appeal it to a judge and the issue would be analyzed in the courts,” Kicillof said. “There’s no default, there’s only payment problems because of a judicial order issued by Judge Griesa. He has the money that is now owned by bondholders and not by us.”