CDS on Argentina could be triggered on Friday when the
International Swaps and Derivatives Association, ISDA, will
meet to decide on the subject.
UBS asked ISDA on Thursday morning to look at the issue,
after a series of last-minute negotiations between Argentina
and holdout creditors ended without an agreement on
Parallel discussions between Argentina's banking association
and the holdouts in search of a work-around solution also fell
through, leaving the path ahead for the sovereign unclear.
CDS referencing Argentina has traded erratically this week,
tightening from 40 points upfront on Tuesday to 30 on
Wednesday, only to widen back to 39 the same day, according to
data from Markit. It was trading at 30 on Thursday morning.
Bonds appeared resilient on Thursday morning after an
impressive rally in anticipation of a deal on Wednesday.
"Surprisingly, the reaction was muted," said Walter Molano,
head of research at BCP Securities. "Bond prices dropped 10
points at the open in London. However, they clawed back some of
the lost ground as the New York markets began to open.
Institutional buyers appeared, wanting to take advantage of the
fact that many of the sovereign bonds are trading flat. They
will recoup the lost coupon as soon as the matter is
Standard & Poor's was the first to label the sovereign
in default, cutting its rating on Argentina to Selective
Default, from CCC-, on Wednesday afternoon as the deadline
passed for the government to make a $539m payment on its 2033
bond. The country is not allowed to service its restructured
bonds without reaching a deal with holdout creditors.
Argentina's banking association, Adeba, had been in
discussions, led by Sebastian Palla, Banco Macro's head of
investment banking, with holdouts. Despite persistent rumors in
Argentine press on Wednesday night that a deal was imminent,
LatinFinance understands the talks had broken down and the
banking delegation was set to return to Buenos Aires.
Adeba was reported to have offered a work-around solution
that would have seen it buying some Argentine debt and holding
it in escrow.
"There have been no official details from the mediator on
the context of the discussion but the local press posits that
the Argentina banking association has offered to post $250m to
$300m in funds for an escrow payment (2010 debt reoffer terms
to not violate RUFO) or alternatively has offered to buy the
holdout bonds," Jefferies wrote in a research note on Wednesday
The developments led to a tumultuous day in markets on
Wednesday, with the sovereign's instruments rallying sharply as
rumors circulated that a deal - either between the holdouts and
either the banks or the sovereign - was imminent.
"What happened this morning and was in all the press was
something positive, good expectations of an agreement, equities
went up like crazy, bond were up like crazy, and we were all
expecting a short term default maybe," said Alberto Bernal,
head of macroeconomic research at Bulltick Capital said on
Kicillof refused to accept the country had defaulted,
reiterating Wednesday evening in a press conference in New York
that the country had transferred the funds to pay the 2033
bond. He blamed Judge Thomas Griesa - who had blocked US banks
from transferring the payment to bondholders - for the
The bondholders put the blame on the sovereign, however:
"During this process, the Special Master proposed numerous
creative solutions, many of which were acceptable to us," an
NML spokesman said on Thursday morning. "Argentina refused to
seriously consider any of them, and instead chose to
Talks with the holdouts had sought to get them to agree to a
stay on a court order to pay all creditors at the same time.
Kicillof said the sovereign could only pay the holdouts what
they paid in earlier restructurings. Paying more, as the
holdouts demanded, would open claims for equal treatment from
restructured bondholders under a "RUFO" clause in restructuring
documents that expires in December.
Kicillof told reporters that no Argentine bankers were at
Wednesday's meetings: "It wouldn't surprise me that there's a
solution between private parties," Kicillof said on Wednesday,
but he added that he had heard about such potential solutions
In a longer than typical statement, mediator Daniel Pollack
said he expected meetings to continue between the holdouts and
the sovereign: "I will continue to be available to the parties
to aid them in reaching a resolution which they must reach in
the interests of all concerned. Default cannot be allowed to
lapse into a permanent condition or the Republic of Argentina
and the bondholders, both exchange and holdouts, will suffer
increasingly grievous harm, and the ordinary Argentine citizen
will be the real and ultimate victim." LF