Argentina Eyes Debt Exchange To Skirt Default

Jun 18 2014 | 2:59pm ET

Scrambling to keep paying holders of its restructured debt while refusing to pay the hedge funds it calls vultures, Argentina is set to ask the former to exchange their New York-law bonds for ones issued under Argentine law.

Argentine Economy Minister Axel Kicillof said yesterday that it would endeavor to make the swap, which its lawyers have called its best option in the wake of the U.S. Supreme Court’s refusal to hear the country’s appeal of lower-court rulings ordering it to pay the hedge funds, led by Elliott Management, or default on its restructured debt—its second sovereign default in 13 years.

Argentina’s cabinet is set to meet with legislators today to discuss how to effect the swap, which will require the approval of the restructured debt holders. The country has about six weeks: It is due to make US$907 million in interest payments on June 30, and will be in default following a 30-day grace period.

In the wake of the Supreme Court decision, Argentine President Cristina Kirchner vowed to keep making payments to the restructured debtholders, who accepted a roughly 70% haircut in 2005 and 2010 debt exchanges. But she reiterated that Argentina would not simply pay the holdouts, and the country has argued that it does not have the cash to do so, anyway. In addition, the provisions of those restructurings bars Argentina from giving the holdouts a better deal, although the country might be able to argue that the U.S. court rulings means it is not doing so voluntarily.

Argentina’s lawyers are set to meet with U.S. District Judge Thomas Griesa in New York to discuss the Supreme Court’s decision to leave his rulings in place. Griesa is the trial-court judge who found that the pari passu clause in Argentina’s defaulted debt required it to continue paying those creditors if it wished to pay the restructured bondholders.

The meeting with Griesa indicates that Argentina may be seeking a deal with the holdouts. Elliott and Aurelius Capital Management have made clear that they are willing to negotiate; on Monday, Kirchner accused the firms of “extortion,” and Kicillof said that the hedge funds “don’t negotiate. The vultures are vultures because they go to court to get the full total of their claims.”


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