By Dow Jones Business News,
June 26, 2014, 03:35:00 PM EDT
Argentina moved closer to its second default in 13 years Thursday after a U.S. court struck down the country's request
for more time to negotiate with a small group of holdout creditors.
Argentina has largely run out of legal options in its long battle with hedge funds suing to collect on bonds affected
by the country's 2001 default. U.S. District Court Judge Thomas Griesa has ruled that Argentina must compensate the
hedge funds at the same time it pays investors who exchanged their defaulted bonds for heavily discounted new debt.
Separately, Argentina said Thursday that it had paid some $832 million of interest due June 30 on its foreign currency
bonds without paying the holdout creditors. Those payments included some $539 million deposited in an account held by
The Bank of New York Mellon at Argentina's central bank.
In a televised speech, Economy Minister Axel Kicillof accused the judge of trying to push Argentina into a new
"The absurd ruling...constitutes a sophisticated way to try and bring us to our knees before global usurers," Mr.
However, it is unclear if bondholders will actually be able to receive and accept the interest payments. Judge Griesa
has said that New York banks that send payments from Argentina to bondholders would be violating his orders if they
helped Argentina skirt his ruling. Bank of New York Mellon, which processes payments for Argentina, didn't immediately
respond to a request for comment.
By announcing the payments, Argentina is trying to demonstrate its willingness and capacity to pay restructured
bondholders, but is simply unable to because of the U.S. court order, analysts say. Mr. Kicillof's tough stance was in
line with Argentina's strategy of polishing its nationalistic credentials at home by attacking the judge and hedge
funds, while adopting a more conciliatory message abroad.
"Any conduct that tries to hinder these payments to creditors constitutes a serious violation of international law,"
Mr. Kicillof said.
The payments come as Judge Griesa said in a signed order on Thursday that Argentina's request for more time was "not
appropriate," adding that the court has no control over whether Argentina pays its restructured bondholders.
Argentina had asked the judge to suspend his order so it could make Monday's payments and have more time to negotiate
with holdouts. Hedge funds led by Elliott Management Corp.'s affiliate NML Capital Ltd. and Aurelius Capital Management
LP had urged the judge to reject Argentina's plea, saying that allowing more time would give Argentina few incentives to
In a letter to Judge Griesa following Argentina's announcement, the lawyer representing the hedge funds asked the
judge to call a hearing to address what he called a "violation" of the court's order.
Argentina has balked at paying the holdouts, saying that it would be bankrupted by an avalanche of other creditor
claims. If Thursday's payments don't make it to bondholders, Argentina will sink into a technical default, with a 30-day
grace period to pay before it faces a full blown default.
The benchmark Merval stock index was down 1.6% Thursday afternoon. Argentina's dollar bonds due 2033, whose interest
payment is due on Monday, edged slightly lower after the judge's denial to 87 cents on the dollar from 87.5 cents. The
yield rose to 10% from 9.92%.
Still, the bonds are trading higher than where they were before the U.S. Supreme Court declined to hear Argentina's
appeal in the case on June 16 as investors bet the two sides will strike an 11th-hour deal before a new default.
Lawyers for the two parties met Tuesday with court-appointed mediator Daniel Pollack, according to a statement from
Mr. Pollack. Though no agreement was reached, they agreed to keep discussions confidential to improve the chances of a
Argentina defaulted on about $100 billion of debt during a deep economic crisis in 2001. The country later offered
holders of the defaulted bonds new securities worth about 33 cents on the dollar. Between the two swaps, investors
agreed to exchange almost 93% of the defaulted bonds.
However, a small minority of bondholders, including NML Capital and Aurelius, opted not to restructure their bonds and
instead sued for full repayment.
These holdout creditors have scoured the globe for Argentine government assets in a largely unsuccessful attempt to
collect on their court awards. Hedge funds have tried to seize central-bank funds, an Argentine Navy ship and more
recently satellite-launch contracts.
Argentine officials said last week the country has been the target of more than 900 creditor lawsuits.
Taos Turner and Matthieu Wirz contributed to this article.
Write to Ken Parks at email@example.com and Nicole Hong at firstname.lastname@example.org
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