Argentine Bonds Fall on Government Proposal to Default Holdouts

By Katia Porzecanski & Bob Van Voris 

Argentina’s dollar-denominated debt dropped on speculation the nation’s offer to pay bondholders from its 2001 default on similar terms as past restructurings will spur a U.S. court to order them to pay in full.

The nation’s restructured notes due in 2033 tumbled 1.83 cents to 51.92 cents on the dollar at 8:03 a.m. in New York, according to data compiled by Bloomberg. The yield on the bonds jumped 55 basis points, or 0.55 percentage point, to 17.04 percent, the highest level since June 2009. Investors are betting Argentina’s offer to so-called holdouts won’t persuade judges to strike down a lower court order that the country pay $1.3 billion to creditors including hedge fund Elliott Management Corp. that didn’t accept the terms of debt swaps in 2005 and 2010. An attorney for Argentina told the judges the nation wouldn’t “voluntarily” obey such an order, fueling concern it would cease payments on all its outstanding debt.

“The proposal could be characterized as a simple ‘carbon copy’ of the 2010 restructuring offer,” Vladimir Werning, an economist at JPMorgan Chase & Co., wrote in a note to clients. “We do not anticipate the judges to support the ‘cram down’ being requested by Argentina.”

Argentine Economy Minister Hernan Lorenzino told reporters March 30 in Buenos Aires that his proposal satisfies the request of the court to treat bondholders equally.

Argentine ‘Defiance’

“This highlights the degree of Argentina’s defiance,” Joshua Rosner, an analyst at Graham Fisher & Co., said in an e- mailed note.

The court may rule at any time on the new offer, which would force holders of the defaulted bonds to take a steep discount on debt the nation repudiated in its record 2001 default on $95 billion.

A decision forcing Argentina to pay the defaulted bondholders immediately would expose it to $43 billion in additional claims it can’t pay and trigger a new default, the government has warned.

In its proposal, Argentina said it would give holders of the repudiated bonds about one-sixth of what a U.S. judge has said they’re entitled to receive. The country’s proposed plan offers two possibilities for holdout bondholders to exchange their defaulted debt for new bonds.

Though Argentina could file an appeal of any adverse ruling by the three-judge appellate panel to a larger number of judges, or the U.S. Supreme Court, contract issues in the case were based on New York state law.

Won’t Pay

Argentina’s top leaders have vowed never to pay the hedge funds, which it calls “vulture” investors, that hold the debt.

The holdout creditors are seeking to uphold rulings by U.S. District Judge Thomas Griesa inManhattan, who has presided over the case for a decade. Griesa has ruled that Argentina must pay holdouts the full amount they’re owed whenever it makes a required payment to the holders of the exchange bonds.

The lower court case is NML Capital Ltd. v. Republic of Argentina, 08-06978, U.S. District Court, Southern District of New York (Manhattan). The appeal is NML Capital Ltd. v. Republic of Argentina, 12-00105, U.S. Court of Appeals for the Second Circuit (New York).

To contact the reporters on this story: Katia Porzecanski in New York atkporzecansk1@bloomberg.net; Bob Van Voris in New York at rvanvoris@bloomberg.net

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