Argentina Deposits $1 Billion For June 30 Bond Payments
Argentina deposited $1 billion to make a June 30 interest payment on restructured bonds, setting up a conflict with a court order that prohibits the nation from paying the notes without also servicing its defaulted debt.
Economy Minister Axel Kicillof said sending the money to bond trustee Bank of New York Mellon Corp. shows Argentina is complying with the terms of its contracts and urged a U.S. judge to delay enforcement of the orders so that the country can negotiate with holders of the defaulted notes. A U.S. judge denied the stay minutes after Kicillof spoke.
The announcement marks another change in tack for Argentine officials in response to the U.S. Supreme Court’s decision June 16 that left intact the order, which requires the country to pay $1.5 billion to holders of bonds that Argentina stopped paying in 2001. President Cristina Fernandez de Kirchner initially said she planned to skirt the ruling by offering a swap into bonds immune from U.S. laws, then the Economy Ministry said June 18 that it wouldn’t make the payment because of the ruling. Officials later said that they’d seek a negotiated settlement with the holdout creditors.
“They want to show good will to exchange bondholders, it’s to reassure bondholders that they will pay them,” Siobhan Morden, the head of Latin America strategy at Jefferies Group LLC said in a telephone interview from New York. “They know that at least their money is pledged somewhere.”
Argentina’s Promises
Ron Gruendl, a spokesman for BNY Mellon, had no immediate comment. The ruling prevents third parties, including the trustee, from transferring payments on the performing bonds unless the holdout creditors are also paid.
Any attempt to block the payment will violate the rights of investors who accepted losses of 70 cents on the dollar in two debt restructurings, Kicillof said.
“Complying with a sentence can’t mean we don’t meet existing obligations,” Kicillof said, reading from a statement in Buenos Aires today. “Argentina will meet its obligations, will pay its debt, will honor its promises.”
Restructured bonds due 2033 fell 1 cent to 86.83 cents on the dollar as of 12:32 p.m. in New York, pushing yields up 0.14 percentage point to 10.02 percent. With the interest payment due at the end of this month, the securities will be in default if a payment isn’t made by the end of a 30-day grace period.
“This is even stronger evidence that they do not want to default,” Jane Brauer, an emerging-markets strategist at Bank of America Merrill Lynch, said in an interview. “We’ve been saying they can’t do this exchange by the end of the grace period, if at all, and perhaps they’re coming around to the same conclusion.”
Debt Claims
U.S. District Judge Thomas Griesa in Manhattan today denied the stay sought by the South American nation. The creditors, led by NML Capital, have said they’re willing to enter into talks with Argentina and would consider working out “a consensual accommodation” to allow Argentina to make its bond payment by the end of its 30-day grace period if talks “have made good progress,” according to a letter filed with the court.
There are still about $6.6 billion of bonds from the default that weren’t swapped in the restructurings, according to data from the economy ministry. Including unpaid interest, potential claims on the notes may total more than $16.2 billion, according to estimates by Citigroup Inc. That’s more than half of Argentina’s foreign reserves.
Good Faith
To persuade international bond investors to once again lend it money, Argentina must settle with all holdouts, according to Phillip Blackwood, who oversees $3.5 billion of emerging-market assets inLondon at EM Quest Capital LLP.
In a presentation yesterday at the United Nations, Kicillof said the country is willing to negotiate in good faith. In a press conference afterward, he said he hadn’t met with representatives for the holdouts and wouldn’t before he left New York.
Dan Pollack, the special master charged with overseeing negotiations, said in a statement yesterday that he’d met with lawyers for Argentina and the holdouts in the previous 48 hours without reaching any resolution.
To contact the reporters on this story: Katia Porzecanski in New York atkporzecansk1@bloomberg.net; Camila Russo in Buenos Aires at crusso15@bloomberg.net
To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.netDaniel Cancel
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