Argentina Says No Default, Ratings Agencies Disagree

Aug 1 2014 | 3:27pm ET

Argentina has insisted that it has not defaulted on its sovereign debt, even though a U.S. federal judge barred it from paying bondholders.

The country missed an interest payment on Wednesday, leading Standard & Poor’s, Fitch Ratings and others to declare it in default for the second time in 13 years. But the country said that, as it deposited the $539 million owed with its custody bank, Bank of New York Mellon, it cannot be said to be in default.

Economy Minister Axel Kiciloff, who participated in two days of last-minute talks with hedge-fund holdouts from its last default, said bluntly, “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.”

Griesa has ordered Argentina to pay the hedge funds, led by Aurelius Capital Management and Elliott Management, about $1.5 billion if it wishes to continue servicing its restructured debt. But the country said that a deal before the end of the year is impossible, due to a clause in the restructured debt that promises those creditors the same treatment as given in any new settlement.

The hedge funds have insisted on full repayment.

Despite Argentina’s insistence, its bonds continued to fall and the situation rocked the markets both in Argentina and across the globe.

Griesa wasn’t the only one to face Kicillof’s criticism. He blasted a proposal by Argentine banks to buy the holdouts’ debt, saying their plan was disingenuous and illegal, as it would have relied on government funding.

“We can’t break the law by giving money from the state to that deal because we would be violating the RUFO clause,” he said. The banks “intended to secure” their initial $250 million deposit with government funds “in case the money wasn’t given back.”

“It’s OK if they think such a deal is convenient but they have to use their own money.”

For its part, Aurelius outright dismissed the move.

"While Aurelius has at times been approached by private parties, or purported intermediaries for unidentified private parties, regarding the possible purchase of a fraction of our untendered Argentine bonds, much of what we have read in the press about such approaches has been, as far as we are aware, inaccurate or unreliable," it said.

"Aurelius has received no such proposal that we considered worthy of serious consideration. We do not undertake to comment further on this topic.”

The late talks—the first time Argentina has sat down with the holdouts—failed to produce an agreement by Wednesday’s midnight deadline. Argentina said it plans to continue the negotiations.


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