LatinNews Daily Report - 17 October 2013

Argentina: On 15 October the danger of a technical default on Argentina’s foreign debt appeared to be getting closer, as two hedge funds (Elliott Management Corp’s NML Capital and Aurelius Capital Management) asked the 2nd US Circuit Court of Appeals in New York to lift a stay of execution on an earlier ruling ordering Argentina to pay them and other holdout creditors US$1.33bn. The stay had been put in place to allow time for further legal appeals, but the hedge fund lawyers now say “the stay has allowed Argentina to indulge its desire not to pay what it owes and can afford to pay”. The case goes back to Argentina’s 2001 debt default and subsequent restructurings in 2005 and 2010. As a result, around 93% of the country’s creditors accepted new bonds in exchange for old debt paper, with a write-down of about 70% of face value. The remaining 7% of the creditors, including hedge funds, refused to accept the write-down and held out for payment in full, which Argentina has consistently refused. In 2012 these ‘holdouts’ were supported by US Federal Judge Thomas Griesa, who ruled that a clause in the original bond contracts requires Argentina to treat all creditors equally, and that the country cannot therefore pay some but not others. Griesa’s ruling, subsequently upheld by the 2nd Circuit, implies that Argentina’s payments to its ‘performing’ bondholders made through the US bank payments system could be sequestered and redistributed to favour both performing and defaulted bond holders. Such a move would trigger a technical default. The next scheduled payment to performing bondholders is due on 2 December, so it may be at that point that the issue comes to a head. Argentina said that its lawyers were studying the latest developments and assessing its next move.

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