No Singer Deal Is No Problem for Argentina’s ’01 Defaulted Bonds
Disgruntled Argentina creditors led by billionaire Paul Singer aren’t any closer to getting paid after more than a decade of legal wrangling.
Yet defaulted bonds left over from Argentina’s financial crisis in 2001 have soared to a record 154 cents on the dollar, according to Exotix Partners LLP. That’s at a time when the country’s other securities have fallen from highs as optimism dwindles that Argentines will elect a president in October who will strike a deal to end the impasse anytime soon.
But while the prospect of a settlement remains unclear, these investors have beenracking up court victories that will strengthen their hand if a deal is ever reached. Just last week, a U.S. judge said Argentina will have to repay holders of $5.4 billion of notes from the 2001 default before it can resume payments to other bondholders. That’s on top of the $1.7 billion the country must also pay the creditors led by Singer’s Elliott Management.
“Thanks to the judicial proceedings to date, these investors possess a strong belief that untendered Argentine sovereign debt presents equity-like returns,” said Michael Roche, a fixed-income strategist at Seaport Group, a brokerage that trades the defaulted securities. “The people are used to long lead times with no interim cash flows, looking for an ultimately large payoff.”
Argentina defaulted on $95 billion in 2001 and imposed losses of about 70 percent in debt restructurings in 2005 and 2010. While about 92 percent accepted the swap, Elliott and other creditors spurned the deal and won the right to full repayment in U.S. courts.
Griesa Ruling
U.S. District Judge Thomas Griesa ruled June 5 that Argentina violated an equal-treatment provision in its contracts with hedge fund and individual bondholders in 36 cases by refusing to pay them while it made regular payments to holders of the country’s restructured debt. That’s the same ruling Elliott won in 2012 and the U.S. Supreme Court upheld in June 2014.
Griesa has barred Argentina from making payments on the bonds it issued in the 2005 and 2010 swaps until the so-called holdouts are paid. President Cristina Fernandez de Kirchner has refused to comply, opting instead to default on the restructured notes in July.
A representative for Elliott declined to comment on the latest ruling.
Jay Newman, a money manager at Elliott, said in an April interview that investors betting on a speedy resolution to the default will probably be disappointed.
Daniel Scioli, a candidate from Fernandez’s party, is most likely to win the election, Citigroup Inc. said in a June 4 report, citing polling data throughout the country. Scioli, who supported Argentina’s decision to default last year, has also said that Economy Minister Axel Kicillof -- Fernandez’s closest adviser -- would have a role in his government.
Still, the collective weight of the obligations increases pressure on Argentina to eventually settle with creditors, according to Stuart Culverhouse, an economist at Exotix.
Argentina has been locked out of international debt markets since 2001.
“It may be good that they have strength in numbers,” Culverhouse said by telephone from London. Bondholders are “prepared to play a patient game.”
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