By Katia Porzecanski in New York
Camila Russo in Buenos Aires
NEW YORK -- Argentina won a delay of U.S. court orders requiring it repay in full holders of defaulted bonds
next month when it makes payments on restructured debt, a ruling that may help spark a rebound in the nation’s performing bonds.
Yields on Argentina’s dollar-denominated notes due in 2017 have soared 3.14 percentage points to 19.2 percent since U.S. District Judge Thomas Griesa ruled November 21 the government can’t pay owners of its restructured bonds unless creditors who rejected debt-swap offers in 2005 and 2010 receive $1.33 billion by December 15. Argentine bonds have lost 11 percent since November 21, compared with an average gain of 0.7 percent in emerging-market debt, on speculation the government would opt to default on over $3 billion in bond payments rather than obey Griesa’s ruling.
Holders of Argentina’s restructured debt may recoup losses as the federal appeals court’s decision yesterday to stay Griesa’s ruling and set a February 27 hearing for the government’s appeal ensures investors are paid next month, according to Greylock Capital Management LLC. The upfront cost of insuring
Argentine debt against non-payment in the next year surged to a record 51 percent November 26, according to CMA Ltd, as President Cristina Fernandez de Kirchner vowed never to pay holders of
defaulted debt, including hedge fund Elliott Management Corp.
“Griesa’s sentence had affected too many third parties not involved in the actual case for this not to be reasonably appealed,” Diego Ferro, who helps manage over $500 million in emerging-market debt, including restructured Argentine bonds, at Greylock in New York, said in an interview. “There’s a problem
between Argentina and Elliott. What do other investors have to do with that problem?”
Honoring Debt
Norma Madeo, an official at Argentina’s Economy Ministry, didn’t respond to an e-mail seeking comment on the stay.
Fernandez said in a speech to members of the business community yesterday the nation would continue to pay its debt.
“We have paid our debt without borrowing from capital markets, with our own funds,” she said from Buenos Aires yesterday. “We’ll continue to honor our commitments.”
Peter Truell, a spokesman for Elliott Management, declined to comment on the court decision.
The upfront cost to insure Argentine debt for the next three months plunged 38 percentage points to 12.5 percent yesterday after the federal appeals court’s decision, according to Venezuela-based brokerage Caracas Capital Markets.
“There’s going to be a relief rally,” Boris Segura, a Latin America strategist at Nomura Securities International, said in a telephone interview from New York. “Prices will go back to the levels they were before Griesa’s Thanksgiving gift. Argentina will be able to make payments at least through December.”
Emergency Stay
Argentina is appealing to try to reverse Griesa’s rulings, which require the country to treat holders of defaulted and restructured debt equally. The country sought an emergency stay on November 26 to permit it to make the December payments without paying defaulted debt creditors.
Holders of the restructured debt joined Argentina’s request for an emergency stay, claiming that concern Griesa’s rulings would force the country to default was causing the value of their bonds to drop.
The stay “ensures that the Exchange Bondholders will receive their rightful payments through December, and until the Court can carefully consider the significant issues and interests that are involved before rendering its final ruling,” Sean O’Shea, an attorney for the group of investors, including Gramercy Funds Management LLC, said in an e-mailed statement.
Singer Setback
The ruling is a setback for the defaulted bondholders, who are trying to collect on court judgments they have obtained against Argentina. The creditors refused to accept Argentina’s exchange offer of 30 cents on the dollar, the harshest restructuring terms since at least World War II.
Since South America’s second-largest economy ceased payments on $95 billion of debt in 2001, bondholders have filed at least 180 civil lawsuits against Argentina in New York courts, according to data compiled by Washington-based attorneys at law firm White Case LLP, which represents about 53,000
Italian creditors.
Russ Dallen, head bond trader at Caracas Capital Markets, says yesterday’s ruling is a temporary victory for Argentina as defaulted-debt creditors still have the legal upper hand.
“Argentina got some breathing room but it doesn’t turn things around,” Dallen said. “They’re still on their back foot.”
Rating Downgrade
Argentina’s credit rating was lowered to CC, eight levels below investment grade, from B on November 27 by Fitch Ratings, which said a default on the country’s restructured notes is probable following Griesa’s ruling last week.
The extra yield investors demand to own Argentine government dollar bonds instead of U.S. Treasuries widened 25 basis points to 1,340 yesterday, according to JPMorgan Chase Co. The peso was little changed at 4.8235 per U.S. dollar.
Warrants tied to Argentina’s economic growth, whose December 15 payment was targeted by Griesa, ended a four-day slump and rose 0.2 cents to 9.52 cents yesterday.
“I don’t dispute the fact that Elliott may be owed some money and that a court decision may come in their favor,” Marco Santamaria, who helps oversee $24 billion in emerging-market debt, including restructured Argentine bonds, at Alliance Bernstein LP, said by phone from New York. “What we as an
institution do have an issue with is the fact that in the enforcement of any such decision innocent third parties are irreparably harmed. There’s no reason why exchange bondholders should be punished such that the holdouts can get paid.” Bloomberg