Argentina tries to pay restructured debt as clock ticks
Sovereign searches for time amid negotiations as payment deadline approaches
Argentina’s attempt to service restructured
bonds is an attempt to avoid violating an agreement
that effectively bars the country from putting
holdout creditors above restructured bondholders
before 2015, analysts said on Friday.
The finance ministry said it wired a payment for $832m on
dollar bonds on Thursday. Including local currency payments,
the total was more than $1bn, it said. The presidency said the
payment included a $539m transfer to BNY Mellon, which is
responsible for passing the cash on to bondholders.
US court orders say Argentina must pay holdout creditors
before servicing restructured debt. It is expected that BNY
Mellon will not put the payment through to bondholders because
of the US ruling, but a bank spokesperson declined to
|| Source: Casa Rosada
The sovereign is in a tricky situation, though, as it agreed
with bondholders participating in its 2010 debt restructuring
that it would not offer better terms to holdout creditors,
without extending the offer to all bondholders. That agreement
is dubbed the RUFO clause, and expires at the end of 2014.
"The initial response [to US court rulings] from Argentina
has been to consistently defy the judgment," Jefferies analysts
said in a research note on Friday. "However, some interpret
this as purposeful to show that any final payment to the
holdouts was "forced" as a litigated settlement that would not
jeopardize the RUFO clause."
An investor told LatinFinance that
Argentina’s attempt to pay restructured
bondholders could be aimed at avoiding being declared in
technical default, but he said the decision may put the country
in contempt of court.
The sovereign is thought to be negotiating with holdout
creditors over a solution. It has a 30-day grace period from
Monday to pay restructured debt before entering default.
"Though we expect a favorable outcome in the end, we suspect
that the negotiations are likely to go to the wire –
until the end of the 30 day grace period for the upcoming June
30 bond payment, likely testing market confidence that the
situation will iron itself out," analysts at Morgan Stanley
said on Friday.
For Argentina to avoid default will depend on goodwill from
both sides, said Jefferies — either the holdouts
supporting a stay on the court ruling, allowing the sovereign
to service restructured bonds in the interim, or Argentina
"showing some flexibility to pay before July 30".
Argentina’s decision to continue servicing
restructured bonds created much doubt on how the situation will
unfold, said Deutsche Bank analysts on Friday. The sovereign is
aware of the "terrible implications" of a default, however, the
"[Argentine] authorities seem to be willing to use all
available political and legal means to gain time and
negotiation space," said Deutsche Bank analysts. "Therefore,
although the Argentine government continues to show willingness
to pay all creditors, negotiations to settle a proper formula
might take time and likely prevent full debt service next
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