Argentina’s options narrow after Supreme Court rejects review
US ruling leaves pari passu decision intact, June 30 deadline looms
Argentina's financial policy makers looked boxed into a corner
on Monday after the US Supreme court rejected a request to
review a lower court's decision.
|| No room to move: traffic stalls in central
Source: Leandro Kibisz
The earlier ruling had said Argentina must pay holdout
creditors, led by NML Capital, in full, before servicing the
debt it has restructured from its 2002 default. Monday's
decision is set to force the country to pay billions of dollars
to holdout creditors. It comes just days ahead of the next
coupon payment date on the restructured bonds.
"Argentina may not continue to make interest payments to the
exchanged bondholders without entering into some sort of
agreement with NML Capital, otherwise it will be in contempt of
the injunction," said Richard Samp, chief counsel at the
Washington Legal Foundation.
The decision comes two weeks after Argentina reached a deal
to pay back
$9.7bn of arrears to the Paris Club of creditor countries,
and will put further pressure on the country's overstretched
Argentina has four options, says Kathryn Rooney Vera, a
macroeconomic strategist at Bulltick Capital: comply with the
decision and pay; negotiate with holdouts to reach a
settlement; swap the restructured bonds into to Argentine law
instruments - or default.
"The option of complying is complicated by the capacity to
do so," Rooney Vera told LatinFinance, pointing to the
country's declining reserves. "Settling is a distinct
possibility, and I think they'll try, because I think the
authorities are more open to negotiating and settling with
holdouts. But we have the constraint of time."
Due to the timing, the sovereign may default on a coupon
payment due on restructured debt at the end of the month, as it
negotiates a settlement with holdouts, she said.
A default on all the country's obligations is unlikely, said
Samp. "A decision to default would serve no one's interests and
is certainly not a decision that Argentina is 'forced' to make,
as it sometimes has asserted when speculating about what it
would do when this day of reckoning was reached."
A stay on the lower court's decision - put in place to allow
the sovereign to challenge the ruling higher up - remains in
place, but is expected to be lifted by the lower court in "the
next several days, without regard to whether Argentina files a
rehearing petition," Samp said. LF