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 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
“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
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
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
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