Thursday, July 24, 2014

CFK, again: I will not sign off on default

President Cristina Fernández de Kirchner waves at Yamaha factory workers and supporters in Mendoza yesterday.

Yesterday’s meeting between gov’t and court mediator Pollack postponed until today

“I want to tell all Argentines that I will not sign anything that jeopardizes future generations,” President Cristina Fernández de Kirchner said yesterday in a speech that served to reaffirm a perceived recovery in her image among the electorate, particularly as result of her administration’s handling of the struggle against holdout hedge funds. (See next page.)

“They’ll have to come up with a new term for when a debtor has paid, the payment is blocked, and an external party prevents restructured bondholders from receiving their money,” Fernández de Kirchner declared at the inauguration of a Yamaha plant in Mendoza, defiant as ever.

There were apparently no doubts in the president’s mind that the country will not willingly declare a default on July 31 if settlement is not sealed with funds led by Elliott Management and Aurelius Management. For the government, the deposit was made, and its responsibilities thus fulfilled. She insisted that the “vultures” provide insurance against possible claims by other investors over the violation of the Rights Upon Future Offers (RUFO) clause if they consider its application to be impossible.

There was also a palpable shift away from the notion the government is bent on a return to international credit markets at any cost.

“When was the last time we had access to foreign credit lines?” she asked, answering: “not in the last decade, but in the 90s” and adding that “when Néstor (Kirchner) came to power, foreign currency debt in the hands of private investors amounted to 166 percent of GDP, and now it is only eight percent of GDP. We must avoid going back to that hell that hampered our ability to develop.”

“I’ve heard the story about dollars flooding into the country before: stones, toads and snakes rained down on us after the mega-debt swap of 2001,” she stated.

Negotiating

Fernández de Kirchner slammed NML Capital and other hedge funds for accusing the country of refusing to negotiate, saying Argentina has shown willingness to fulfill commitments with 100 percent of creditors.

“We have travelled around the world since 2005 to negotiate with banks and investors for them to engage in debt swaps, after which 92.4 percent of bondholders did so. How can they say we have not negotiated?”

She also highlighted having “negotiated with Repsol for two years, and if that’s not enough for them, eight ministers came out and went before we were able to reach an agreement with the Paris Club” group of creditor nations, to which close to US$9 billion was owed.

The president reiterated that the “vulture funds’” real objective is to make the debt swaps collapse and make Argentina pay its debt by handing over the Vaca Muerta shale oil and gas formation in Patagonia.

Meeting adjourned

Daniel Pollack, the mediator in the Argentina debt dispute said he had to push back by a day the start of the latest round of settlement talks yesterday, because the Argentine delegation “could not get here in time.”

Pollack, a New York lawyer appointed to oversee the settlement discussions, had scheduled a meeting for 11am Argentine time after a US judge on Tuesday ordered the parties to meet “continuously” until a deal is reached.

He said in an email the scheduled meeting in New York “had to be postponed, because the Argentines said they could not get here in time.” He later said the meeting had been rescheduled for today at 1pm Argentine time.

Argentina faces a July 30 deadline to cut a deal with bondholders who demand full payment for defaulted bonds, instead of a reduced amount. Absent an agreement, it could default on its debt at the end of the month for the second time in the 21st century.

Argentina, which defaulted on about US$100 billion in 2002, has been pushed to the brink of a fresh debt default by US court decisions that it pay the US$1.33 billion face value of the bonds plus interest to bondholders who did not participate in debt swaps in 2005 and 2010. The bondholders who participated in the debt swap accepted receiving a fraction of the bonds’ full value.

The July 30 deadline faced by Argentina is to pay holdouts led by Elliott Management’s NML Capital Ltd and Aurelius Capital Management.

The country argues that paying the holdouts would open it up to as much as US$15 billion in claims from other investors and further strain its financial condition.

The originally scheduled Wednesday meeting with Pollack, a partner at the law firm McCarter & English, was scheduled at a hearing Tuesday before US District Judge Thomas Griesa, who called the possibility of default “the worst thing I can envision.”

Pollack, who was appointed June 23 as a mediator, has been holding meetings with the parties, publicly acknowledging talking twice with Argentine officials.

After Tuesday’s hearing, NML issued a statement saying it was prepared to meet with Pollack and was “confident this matter could be resolved quickly if Argentina would join us in settlement discussions.”

In a statement released late Tuesday, the Economy Minister said Griesa was “threatening the Argentine Republic with what he insists on calling ‘default.’”

The possibility of a default came after Argentina last month made what the ministry said was $1.15 billion payment for its restructured bondholders. That money included US$539 million deposited indentured trustee Bank of New York Mellon Corp.

But Griesa deemed the payment a violation of injunctions that required Argentina to pay the holdouts the US$1.33 billion the next time it paid the restructured bondholders, and told the bank to return the money.

BNY Mellon has sought to hold onto the money to minimize its liability. Griesa on Tuesday told the bank and holdout creditors to try to reach an agreement that would minimize further litigation.

Herald staff with Reuters