Argentina gains time despite "harsh" ruling
Argentina got some breathing room in an otherwise "harsh" US court decision handed down on Friday, analysts say.
The US Court of Appeals ruled in favor of
Argentina's holdout creditors, saying the sovereign must pay
those bondholders in full if it is to continue servicing the
debt it has exchanged.
"[The court] rejected Argentina's
alternative proposal to pay the holdouts with new bonds at a
heavy discount," said analysts at Itaú. "The ruling was
harsh. Argentina must pay holdouts 100% of the approximately
$1.33 billion of principal and accrued interest that are
Nevertheless, the court said it would
delay enforcement to allow the US Supreme Court to determine if
it might hear the case.
That gives Argentina "some breathing
room", Siobhan Morden, head of Latin America strategy at
Jefferies, told LatinFinance Friday. The Supreme Court accepts
few cases, but a petition from a sovereign state amidst
international lobbying increases the likelihood of it
considering this one, she adds.
"Argentina was already trading with
improving optimism of the legal risks over the past two months,
but we assume that this optimism recovers as the markets expect
that the appeal process will continue," Morden says.
If Argentina's case is reconsidered by the
Supreme Court, the wait for a final ruling could extend into
the next political cycle.
"I don't think it's a stretch to say we
could be looking into 2015, at which point we're looking at
political transition potentially [in the next presidential
elections] in Argentina," Anna Gelpern, professor at Georgetown
Law School, told LatinFinance . "It's clearly a defeat, but it could be
a while before they start having to worry about it."
If the matter is taken by the Supreme
Court, Barclays says a decision would come in mid-2014 at the
soonest or mid-2015 at the latest.
"The possibility of making a better
offer to holdouts seems harder now that they have a
significantly higher chance of receiving a payment in full,"
the shop says in a report.
The next interest payments on Argentina's
restructured bonds are due in September.
Barclays sets out the options that would
be open to President Cristina Kirchner if the final ruling goes
against Argentina. The sovereign could pay restructured
bondholders in violation of the ruling, which would open the
possibility of being sued in international courts. Similarly,
paying the holdouts would open the way for claims from the
Other options would be to look for a way
to work around the court order - offering "an uncertain
outcome" in Barclays' view - to wait until a clause in earlier
restructurings that prohibits better offers to other creditors
expires, or to repudiate the debt. LF