Home' Trinidad and Tobago Guardian : July 27th 2014 Contents JULY 27 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
INTERNATIONAL | SBG19
Its steakhouses bustle, its shopping
malls teem. There are few signs that,
on July 30, Argentina could default for
the eighth time. Yet the chances are
The countdown started on June 16, when
the US Supreme Court announced that it
would not get involved in Argentina s battle
with NML Capital, a hedge fund that had
picked up cheap debt after Argentina s 2001
default and since than has litigated for payment
of full principal plus interest. The decision left
intact a ruling by Judge Thomas Griesa of the
New York District Court which banned
Argentina from paying the creditors who in
2005 and 2010 swapped 93 per cent of default-
ed debt for performing securities, if the country
did not also pay NML what it wants.
Argentina was left with only thorny choices:
pay NML the US$1.3 billion plus interest
awarded by Griesa, negotiate a settlement with
the hedge fund or stop paying the exchange
bondholders. A payment to those exchange
bondholders, due on June 30, was missed. The
grace period expires on July 30, at which point
Argentina will again be in default.
Full payment would be hard to swallow.
President Cristina Fernandez de Kirchner
always has opposed paying up, and a generous
payment for NML would open the door to
similar payouts to other "holdout" creditors.
The consensus has been that Argentina will
reach a negotiated settlement with the hold-
outs. Argentina had made good progress this
year in its quest to regain access to capital
markets by, for example, settling disputes with
the Paris Club of government creditors. Tack-
ling the holdout issue was the logical next
step. The price of dollar-denominated defaulted
debt surged above face value after the Supreme
Court s ruling, opening up a gap with euro-
denominated debt that is not subject to New
Since then, however, the weeks have been
frittered away. Argentina s principal tactic has
been to try to win a stay from Griesa. It claims
that it cannot arrange a settlement with the
holdouts without potentially triggering the
Rights Upon Future Offers clause written into
its restructured bonds.
This clause, which will expire on December
31, specifies that Argentina cannot voluntarily
offer holdouts a better deal than it did during
its 2005 and 2010 restructurings without
extending that offer to all bondholders. Argenti-
na has argued that violating this clause would
risk a flood of bondholder claims and could
leave officials vulnerable to criminal prosecution
for increasing its debt. A stay until the expi-
ration of the RUFO clause is the answer, it
NML insists that Argentina is overplaying
the RUFO worry. Given that the country has
appealed its case all the way to the Supreme
Court and been rebuffed, the fund says, a
judge is unlikely to deem any deal "volun-
More important, Griesa is having none of
it. In a July 22 hearing, he rejected the request
for a stay and ordered the holdouts and
Argentina to negotiate "continuously" with a
court-appointed mediator in order to reach a
"The reference to the restrictions of the
RUFO clause does not help," says Eugenio
Bruno, a debt-restructuring lawyer, "because
that clause was self-imposed by Argentina
and therefore hard to use as an argument."
A settlement would be in the interest of
exchange bondholders, who would keep getting
Clearly it also would suit the holdouts.
Default would deprive NML both of a payout
and of its status as a disadvantaged creditor:
Unless Argentina is paying other bondholders
and not paying NML, its claim for equal treat-
ment is void. The fund s representatives have
stated that they are willing to bend on timing
as well as on payment structure, offering to
accept a mix of bonds and cash to lower the
hit to Argentina s foreign reserves.
Workarounds for the RUFO problem also
may be possible. Argentina could ask its
exchange bondholders to waive the clause,
though time is now short to secure the majority
consent that is required. Some think that
Argentina could give NML promissory notes
which it could exchange for performing secu-
rities in 2015, after the RUFO term expires.
Failing that, the country could simply pay
NML the full amount, as ordered, which would
be more likely to be deemed involuntary.
The unknown is how desperate Argentina
is to avoid default.
The country has survived 13 years without
access to dollar-bond markets. It may calculate
that its efforts to keep paying the exchange
bondholders, allied to general suspicion of the
holdouts, will stand it in good stead with main-
stream creditors. Fernandez has worked hard
to convince Argentines that Griesa and the
"vulture" funds would be to blame if the coun-
The costs for the outside world would be
containable. Few investors would be shocked
if Argentina defaults. Its outstanding debt
under foreign law, what analysts call the
"defaultable universe," amounts to only $29
billion, far less than the US$81 billion on which
it reneged in 2001.
On the other hand, default would have real
costs for Argentina. Its isolation from dollar-
bond markets would continue. Its foreign-
exchange reserves have dwindled with time.
Borrowers such as YPF, the state oil firm that
has placed bonds in global markets, would
face higher interest rates, risking delays to the
development of Vaca Muerta, a huge shale
formation. Rising local demand for dollars
already is putting pressure on the peso in the
unofficial market. All of this would make it
even harder for the country to crawl out of
Default also would mean another foray into
the legal labyrinth, because it would trigger
"acceleration clauses" that give bondholders
the right to demand immediate repayment.
These clauses exist in all of the country s for-
eign-law bonds, not only the ones governed
by New York law, so that would open Argentina
to court battles in other jurisdictions too.
Easy answers there are none.
@2014 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
Argentina's debt clock ticks on
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