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Argentina gains time despite "harsh" ruling

Aug 26, 2013

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 currently due."

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 restructured creditors.

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



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