Argentina is set to default on its sovereign debt for the second time in 13 years, after a federal judge again sided with hedge-fund holdouts from its last default and barred the country from making more than $500 million in bond payments due today.
If, as appears likely, Argentina cannot strike a deal with the hedge funds, led by Elliott Management, today, it will enter into technical default on nearly $30 billion in restructured bonds issued in exchange for defaulted debt in 2005 and 2010. Elliott and a small number of other holdouts have refused to accept the exchange, which required investors to take face-value losses of about 70%.
The country finds itself on the brink of another default after U.S. District Judge Thomas Griesa ruled Friday that the country could not make the payments, which would be a violation of his earlier orders that Argentina must pay the holdouts $1.5 billion if it wishes to continue to service its performing debt. The latest ruling came after Argentina moved on Thursday—the same day Griesa rejected its bid for a stay to give it more time to negotiate—to deposit some $832 million with several banks, most of it with the Bank of New York Mellon, to make today’s payment.
Argentine Economy Minister Axel Kicillof quickly accused Griesa abusing his authority and exceeding his jurisdiction.
Robert Cohen, a lawyer for Elliott’s NML Capital, complained on Friday that Argentina “defiantly and contemptuously violated” the judge’s orders and asked him to hold the country in contempt. “They simply ignored [the orders], thinking that they could maybe get away with it.”
Griesa—whose earlier rulings were upheld this month by the U.S. Supreme Court—expressed his own frustration with Argentina’s request for more time and over the slow pace of negotiations since he appointed a mediator last Monday. He warned that he would “enter whatever order is appropriate nullifying this purported payment” by Argentina, and called the deposit an “explosive action.”
“This payment is illegal and will not be made,” he said. “Anybody who attempts to make it will be in contempt of court.” He said BNY Mellon “didn’t do anything wrong” in receiving the payment, but he urged the bank to return the money to Argentina, “simple as that.”
Griesa also barred Argentina from paying its euro-denominated debt, although he said the country could pay any bonds issued under Argentine law.
The tough talk quickly sent the cost of credit default swaps on Argentine debt up almost 20%. But Argentina still has a 30-day grace period to make the payment before the default becomes final, and lawyers for both sides on Friday said they remain open to talks to resolve the dispute before the end of next month.
Argentina lawyer Carmine Boccuzzi said the country “still hopes to be able to engage in discussions with the plaintiffs and all the holdout creditors,” adding, “We need time.”