October 31, 2014
CFK tables bill to bring debt jurisdiction back home
President Cristina Fernández de Kirchner’s government wants to service the country’s debt in Argentina or allow bondholders to swap their bonds for new ones governed by national law in order to get around a US court order.
The announcement appears to be a tacit acknowledgment that the country is nowhere near reaching an agreement with holdout creditors, which would enable it to exit default.
In a televised speech, the president unveiled a bill that she would send to Congress to remove Bank of New York Mellon as the exchange bondholders’ trustee and replace it with the local Banco Nación.
Banco Nación would open up an account at the country’s Central Bank to enable Argentina to service its exchange debt there. Any changes, however, would be voluntary.
Under the proposal, holders of bonds resulting from the 2005 and 2010 debt restructurings could also choose to swap their bonds for notes with “identical terms and financial conditions, and with equal nominal value” under Argentine law.
A New York court has blocked an interest payment owed to holders of debt that was restructured after the country’s record 2002 default. Judge Thomas Griesa has said Argentina could not pay that debt until it had also settled with a group of funds that had rejected the restructuring deal and were demanding full payment.
Fernández de Kirchner has long rejected Argentina is in default, insisting the country has paid off its obligations.
“We will seek to implement legal instruments that would allow us to pay all the bonds issued after the 2005 and 2010 debt swaps. And we also want to include the people who didn’t take part in those debt swaps,” Fernández de Kirchner said in a recorded speech from Government House. “Argentina wants to fulfill the contracts it has signed.”
The announcement effectively means Argentina does not recognize that the vulture funds are owed any more than what it has paid to those who accepted the restructuring.
The bill proposes a voluntary change of jurisdiction that would allow to pay bondholders who entered in the 2005 and 2010 debt swaps in Buenos Aires, withouth risking those funds being seized by foreign judges. Each bondholder could decide if he or she chooses to accept the change, Fernández de Kirchner was careful to emphasize.
While servicing the restructured debt, the package of laws also seeks to open a new voluntary debt swamp to include the remaining 7.6 percent of the creditors who refused to take part in the 2005 and 2010 restructurings.
“When you create a trust for specific purposes, the money can only be used for the purposes established by the law with which you create the trust. No one will be allowed to touch those funds because they are owned by our creditors,” the president said, emphasizing that her government wants to pay what it owes creditors.
The move to open an account in the Central Bank amounts to a leap of faith, with the federal government acting as if the holdouts will one day accept the terms of the restructuring they have rejected so many times in the past.
‘Don’t want to negotiate’
“This is for future governments, not for mine. Because if I signed what some people want to, the bomb would explode now. We would probably have people offering us loans with low interest rates,” Fernández de Kirchner said. “But paying them would mean start the never-ending debt cycle again,”
Reaching a deal with the vulture funds and the rest of the holdout creditors is the last real hurdle that the country has before it can reenter international markets, after having reached repayment deals with the Paris Club and settled some cases with the World Bank’s ICSID.
The president’s announcement came after international banks such as JP Morgan and Citibank tried to reach an agreement over the past week with the vulture funds but disagreements on price made the talks collapse. Local private banks also failed to reach an agreement.
The government has held several meetings with court-appointed mediator Daniel Pollack and has insisted it needed a new stay issued by Judge Thomas Griesa to negoatiate with the holdouts. The government has said that paying vulture funds more than to other creditors could trigger the Rights Upon Future Offers (RUFO) clause.