Argentina Mulls Legal Options in Debt Dispute

By Dow Jones Business News, 
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By Ken Parks, Matt Day and Nicole Hong

BUENOS AIRES--Argentina could take a legal battle with creditors over unpaid debts in the U.S. to global bodies like the International Court of Justice in The Hague after defaulting on some of its debt for a second time in 13 years, a senior government official said Thursday.

Standard & Poor's Ratings Services declared Argentina on Wednesday in default on some of its bonds after Argentine negotiators and a small group of hedge funds in New York failed to reach a deal before a deadline to make $539 million in interest payments lapsed Wednesday.

Argentina deposited the money last month with bond trustee The Bank of New York Mellon, but U.S. District Court Judge Thomas Griesa blocked its distribution to investors because Argentina ignored his ruling to also pay hedge funds suing to collect on bonds the country stopped paying in 2001.

Argentina's situation raises questions about the "precariousness of the U.S. justice system" and the failure of the U.S. courts and government to uphold that country's laws and contracts, said Cabinet Chief Jorge Capitanich during his daily news conference.

"There are multiple international legal avenues. For example, an appeal before the international court in The Hague," he said. "The international community can't back the actions of tiny groups that try to dynamite sovereign debt restructurings."

President Cristina Kirchner is scheduled to speak at 5:00 p.m. EDT, he said.

Argentina's dollar-denominated bonds due in 2033, the ones whose interest payment was due, fell to near 90 cents on the dollar, from a closing price of 96 cents late Wednesday, traders said. Bond yields rose to 9.7%, from 8.8%. Prices move in the opposite direction as yields.

"The prices are all over the place," said Peter Lannigan, managing director at CRT Capital Group LLC. "It's highly uncertain even where prices are right now. Trading is very spotty."

Still, the bonds remain at lofty prices because some investors seem hopeful that Argentina can quickly emerge from default. Many were focusing on a potential private-sector solution that would allow Argentina to settle its debt with the holdouts, after the news earlier this week that Argentine banks were preparing a bid to compensate part of what the government owes.

"The expectation of a bank deal is supporting bond prices," said Siobhan Morden, head of Latin America strategy at Jefferies LLC. "But it's difficult to trade these headlines when you're getting whiplashed" by sharp price moves in thin trading. "Most people have adopted their view, taken their positions, and waited to see what the final outcome will be, " Ms. Morden said.

Argentina's latest default can trace its roots back to the country's decision to repudiate about $100 billion in debt during a deep economic crisis in 2001. After years of confrontation with creditors, investors exchanged almost 93% of their defaulted bonds for new securities in heavily discounted restructurings in 2005 and 2010 that gave them just 33 cents on the dollar.

But some investors refused to take the new bonds, with many suing in U.S. courts for full repayment. These included hedge funds led by Elliott Management Corp.'sNML Capital Ltd. and Aurelius Capital Management Ltd., which have won about $1.6 billion after years of litigation.

U.S. courts had jurisdiction over these lawsuits because Argentina had agreed in some of its bond contracts to resolve any disputes under New York law.

After Argentina denounced several U.S. court rulings awarding judgments to creditors and consistently refused to pay the holdouts, Judge Griesa issued his unprecedented 2012 ruling that barred Argentina from paying its restructured bondholders unless it also pays the holdouts. That ruling was upheld by the Second Circuit Court of Appeals and the U.S. Supreme Court in June declined to hear Argentina's appeal.

A prolonged default would pressure an economy already mired in recession, potentially leading to higher inflation and a weaker currency. The breakdown of negotiations complicates President Kirchner's efforts to stabilize the economy before she steps down in December 2015.

Argentina isn't in default, because it made the payments on time and investors should pressure the bond trustee to get their money, Mr. Capitanich said.

"Many bondholders who participated in the restructurings don't have an aggressive judicial attitude as if the money wasn't important to them," he said. "What they ought to do is demand their payment."


  (END) Dow Jones Newswires
  07-31-141009ET
  Copyright (c) 2014 Dow Jones & Company, Inc.


This article appears in: Bonds , International

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