BofA Tells Bond Buyers: Singer Won’t Block This Argentina Payout
Given Paul Singer’s success in disrupting Argentina’s bond payments, it’s not surprising investors are reluctant to buy local notes that the country is set to repay in October.
They shouldn’t be, Bank of America Corp. and Jefferies Group LLC say. The hedge-fund manager is unlikely to target the $6.3 billion of debt as part of his attempt to force Argentina to repay him because he’s focused on blocking payments on recently issued notes, they say. And even if he tried, the legal dispute that would arise wouldn’t be resolved before the debt matures, Bank of America strategist Jane Brauer says.
Concern that the bonds are in the crosshairs of Singer and other disgruntled creditors has caused them to slump, pushing yields above those of Argentine debt due in as much as nine years later. The unease has become more acute as his firm Elliott Management bolsters efforts to win repayment nine months after U.S. courts barred Argentina from honoring its foreign debt until it settles with the hedge fund.
“It’s highly unlikely they do not pay,” Brauer, who recommends the notes, said from New York. “The bonds represent a very generous yield for what we consider very low risk.”
The debt’s price has dropped to 99.3 cents and now yield 12.2 percent, or 3.1 percentage points more than the country’s 2024 notes, data compiled by Bloomberg show.
The 2015 securities are worth 103.5 cents on the dollar at maturity, when factoring in the $6.3 billion of principal and $219 million of interest Argentina will pay in October.
Latest Attempt
Elliott Management and Mark Brodsky’s Aurelius Capital Management asked a New York judge this month to block payments on local-law Argentine bonds due 2024 after the country issued $1.4 billion of the notes in April. They say the bonds were offered to overseas investors, making them subject to the ban.
U.S. District Judge Thomas Griesa’s ruling has triggered a default on securities that were issued under both foreign and domestic law in Argentina’s 2005 and 2010 debt restructurings. He has said that because the local-law securities were offered globally, they constitute external indebtedness and are subject to his ruling.
A representative for Elliott and Brian Schaffer, a spokesman for Aurelius, declined to comment on whether they will also seek to block payments on 2015 bonds.
Hard Case
Argentina President Cristina Fernandez de Kirchner has called the creditors “vultures” and refused to negotiate.
To Barclays Plc’s Sebastian Vargas, it would be hard for Singer to prove the 2015 bonds were offered to global investors and are therefore covered by the ban. He’s also recommending the notes.
Argentina, which hasn’t sold bonds under foreign law since defaulting on $95 billion in 2001, began issuing the 2015 securities in 2005. In a bid to help Argentina avoid international markets, then Venezuelan President Hugo Chavez bought some of the securities from the country, which his government then sold.
“The hedge funds have been sticking to the path of least resistance when it comes to picking which bonds they want included in the injunction,” Vargas said from New York. “For the 2015 bonds, they would have to dig around to show the mechanism by which they were issued.”
A decision to include the 2015 notes would also likely be appealed by Argentina, he said.
‘Move On’
Argentina is currently appealing Griesa’s March 12 move to make restructured local-law bonds part of his injunction. That decision hasn’t been stayed pending appeal.
If Singer added the bonds to the mix, he’d risk distracting Griesa and potentially delaying a ruling on the 2024 notes, said Bank of America’s Brauer.
If Elliott and Aurelius are “planning on doing something to interfere with that payment, they better get a move on,” Henry Weisburg, an attorney at Shearman & Sterling LLP, said at a May 1 event organized by trade group EMTA.
Still, Matthew McGill, a lawyer for Elliott at Gibson, Dunn & Crutcher LLP, said getting Griesa to decide whether to include the 2015 bonds in his order by October isn’t an issue.
“He can move quickly when things need to move quickly,” he said at the EMTA conference. “The question that will need to be resolved is whether these bonds are external. That will again turn on whether they were offered exclusively within Argentina.”
For Singer, it’s more important to block payments on the 2024 bonds because that would constrain the nation’s ability to raise money from international investors, said Siobhan Morden, the head of Latin America fixed-income strategy at Jefferies.
“The idea is to threaten access to block this market so that officials do not view it as a substitute for curing the default,” Morden, who also advises buying the 2015 bonds, said by e-mail.
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