Argentina to burn bondholders in defiance of US court ruling

Mr_Red · 17-06-2014 01:38PM #1

President says country will not submit to extortion after court rules in favour bondholders

Argentinian president Cristina Fernandez de Kirchner ruled out complying with a US court order to pay holders of defaulted bonds in full, leaving the country two weeks to come up with a way to avoid a second debt crisis in 13 years.

Speaking in a nationwide address hours after the US supreme court declined to hear Argentina’s appeal of the case, she used the term “extortion” to describe the ruling that requires the nation to pay defaulted bondholders when it makes payments on its restructured debt.

The country’s next interest payment is due June 30th, limiting the time for Ms Fernandez to reach an accord with holdout creditors including hedge-fund manager Paul Singer’s Elliott Management Corporation.

Ms Fernandez said complying with the ruling was impossible and would exposeArgentina to as much as $15 billion in claims from creditors who rejected restructuring offers following the country’s $95 billion default in 2011.
The president said she instructed economy minister Axel Kicillof, who negotiated to resolve debt disputes with the Paris Club and Repsol SA in the past four months, to figure out a way to keep paying holders of restructured notes.

“Argentina has the willingness to negotiate,” Ms Fernandez said. “What it doesn’t have - and I’ll spell it out for you - is the need to be subjected to such extortion. I don’t think it’s deserved.”

Argentina’s restructured bonds plunged an average 9.3 per cent yesterday as investors considered the country’s next steps. Ms Fernandez said in August that she would offer to swap holders of restructured New York-law bonds into debt governed by local law to avoid having to pay holdout creditors in full. Government attorneys later denied having a plan to do so.

According to a May 2nd memo leaked to an Argentine website last month, the country’s attorneys recommended a default and immediate restructuring in the event the supreme court rejected the appeal, which was tied to claims totaling $1.3 billion.

Some investors are speculating Mr Kicillof may indicate as soon as today if the government’s plan is to change the jurisdiction on the bonds, according to Jose Luis Espert, who runs research firm Espert and Asociados in Buenos Aires. “I don’t know how viable that is, but there’s very little time to negotiate,” Kathryn Rooney Vera, a macroeconomic strategist at Bulltick Capital Markets, said in a telephone interview from Miami.

Last week, Mr Kicillof raised the prospect of negotiating with the holdouts, a step the country has previously rejected.

The dispute revolves around Argentina’s 2001 default on a record $95 billion in debt. The country offered to swap the securities with bonds worth about 30 cents on the dollar in 2005 and made a similar proposal in 2010. Owners tendered about 92 per cent of the outstanding debt. Argentina calls the investors who have refused previous debt exchanges “vultures” because they bought many of the bonds post-default at a discount, angling to eventually collect a windfall. “America’s highest court has spoken,” NML Capital, a unit of Elliott, said in a statement before the speech.

http://www.irishtimes.com/business/sectors/financial-services/argentina-to-burn-bondholders-in-defiance-of-us-court-ruling-1.1835434

Renegade Mechanic · 17-06-2014 01:41PM

And their leader appears to have more balls than anyone here. Good on her.

Arthur Beesley · 17-06-2014 01:43PM

Mr_Red wrote: »

President says country will not submit to extortion after court rules in favour bondholders

http://www.irishtimes.com/business/sectors/financial-services/argentina-to-burn-bondholders-in-defiance-of-us-court-ruling-1.1835434

This could be interesting how this plays out burning the Bond holders.

The US were pushing ARG like the EU was pushing Ireland

Not quite the same scenario though - this was bog standard public / national debt, nothing to do with nationalization of private debt of the banking sector.

fleet_admiral · 17-06-2014 01:44PM

Does Argentina have oil? They might need some 'freedom' now

hmmm · 17-06-2014 01:44PM

Argentina has been suffering for 10 years after their last default. The current situation is that Argentina is desperately trying to get back into international debt markets, and had come to an agreement with some of the bondholders to repay them. However, a group of bondholders have sued Argentina to demand repayment of the full debt, and Argentina has lost the case. Now the country faces bankruptcy again while the President tries to pretend that she is some sort of hero.

I find it ironic that it is the hard left who want to burn bondholders, while at the same time they want to run massive government deficits.

Arthur Beesley · 17-06-2014 01:44PM

Renegade Mechanic wrote: »

And their leader appears to have more balls than anyone here. Good on her.

So you think it's okay for the country to welch on it's obligations? Probably shouldn't have borrowed if they couldn't afford to repay.

Arthur Beesley · 17-06-2014 01:46PM

fleet_admiral wrote: »

Does Argentina have oil? They might need some 'freedom' now

Well given that this is public debt, and they have already defaulted if's safe to say they don't have oil, or else they massively mismanaged it, if they do.

szatan84 · 17-06-2014 01:49PM

Argentina is to comply with a US court order? The way I see it Argentina is outside US jurisdiction so the court order isn't worth a w***. And let me guess, most of the bondholder are American.

Arthur Beesley · 17-06-2014 01:50PM

Renegade Mechanic wrote: »

And their leader appears to have more balls than anyone here. Good on her.

This is the same one who want's to annex the Falklands?

Sounds like she has an election coming up and is trying to whip up support for her party and failed government.

She should probably focus more on managing the public finances than these publicity stunts.

No wonder the Falklands residents are happy to stay part of Britain.

Arthur Beesley · 17-06-2014 01:52PM

szatan84 wrote: »

Argentina is to comply with a US court order? The way I see it Argentina is outside US jurisdiction so the court order isn't worth a w***. And let me guess, most of the bondholder are American.

Put it this way - if they ever want to borrow money again they will comply.

bear1 · 17-06-2014 01:52PM

I believe Argentina has now defaulted twice in just over a decade.
Once in 2001 and again in 2012.
The bottom line is that Argentina borrowed vast amounts of money, now that they want the money repaid they are "vultures".
On the other hand though, the US might be held to the same accountability if their Chinese creditors ever come knocking.

Augmerson · 17-06-2014 01:53PM

Arthur Beesley wrote: »

This is the same one who want's the Falklands back?

I think most Argentine's (and certainly the ones I spoke to) want the Falklands/Las Malvinas but it was never theirs to begin with. It was Dutch I think before it was British.

Arthur Beesley · 17-06-2014 01:55PM

Augmerson wrote: »

I think most Argentine's (and certainly the ones I spoke to) want the Falklands/Las Malvinas but it was never theirs to begin with. It was Dutch I think before it was British.

Sorry, you are correct - removed reference to 'back' and replaced with 'annex'.

Amirani · 17-06-2014 01:56PM

szatan84 wrote: »

Argentina is to comply with a US court order? The way I see it Argentina is outside US jurisdiction so the court order isn't worth a w***. And let me guess, most of the bondholder are American.

I don't think you really understand the situation.

A huge amount of sovereign debt is sold to international investors on US markets. If Argentina ignores a US court ruling such as this, they're going to find it very difficult to finance the running of their country, and will probably have to pay higher coupon rates on debt issues.

comongethappy · 17-06-2014 01:58PM

Country borrows tens of billions to run its mismanaged state.

Country declines to pay it back.

Apparently some think thats ballsy?

Suck it up, pay your dues & manage your country better.
That ballsy.

Rightwing · 17-06-2014 02:02PM

comongethappy wrote: »

Country borrows tens of billions to run its mismanaged state.

Country declines to pay it back.

Apparently some think thats ballsy?

Suck it up, pay your dues manage your country better.
That ballsy

I would estimate 95% of the population haven't a clue when they shout 'burn the bondholders'. Many of them shouting it as they queue up for their welfare payments and others as they they collect their massive public sector wages.

I am pie · 17-06-2014 02:04PM

1. The debt in question is 8% of the country's overall debt.

2. The outstanding 92% of debt was restructured in 2005 and again in 2010, terms where agreed and no payment has ever been missed.

3. The bulk of the holdout 8% is owned by NML capital, to get it back they created a lobby group who lobbied the US govt and US supreme court. The current administration is sympathetic to Argentina's claims.

4. In 2008 NML capital (Paul Singer owns it, it's a hedge fund, he's a strong defender of the 1% and a rapidly becoming an influential person in Republican conservative politics) bought junk bonds for a knockdown price of 50m USD (sub investment grade bonds) betting that despite the knowledge that Argentina had defaulted and was restructuring debt and rebuilsing it's economy they would play the long game and claim back 100%.

5. They do this in full knowledge that it would jeopardise the restrcuturing of the 92% of outstanding debt, paid as per the terms. It opens a legal recourse for those bondholders to sue for 100%, bankrupting the country and tossing it onto the scrap heap. Bear in mind these bonds were originally issued at a time when the country was collpasing around itself and had 3 govts in 2 years.

6. The rate of return which Mr Singer and his merry band of vultures are seeking is 1068% interest. In other words, they bought 50m USD of junk bonds (the value of your investment may go up or down??) and are now suing for 1.5billion USD. This could open the door to 15billion worth of debt. Argentina currently has foreign currency reserves (ain't nobody taking payment in Arg. pesos!) of 32bn (roughtly) USD. Spending half of this on debt would cripple the country.

Options are: negotiate a payment schedule, refuse to pay or pay in full straight up. The only fair and sensible option is negotiating with the vultures. Unfortunately the Argentine govt has engaged in all sorts of polemic and speeches calling the hedge fund all sorts fun names and have stated they wont pay them a dollar.

I do not like the current Argentine govt, they are populist and have mismanaged the economy terribly in the last 5 years. I support the measures they took to exit the default in terms of debt restructuring, but now they face a serious hurdle to exit that program of repayments as the cuddly face of capitalism insists on a 1068% interest on it's investment.

Significantly Argentina needs to make it past March 2015 without making a 100%full payment to NML capital as they would then pass the period of time the 92% could make full claim for payments.

It's a wonder why the developing world has such anti-US sentiments, when the highest US courts supports loan sharks demanding 1068% interest over 6 years, when it's more important for a hedge fund to make 1068% interest on a 50m USD investment than it is for a sovereign state to become a stable country and exit the worst financial crisis in it's modern era. A country which we should remember only 30 odd years ago had a military dictatorship. It's hard enough for Argentina to escape it's past without the US supreme court and Republican hedge funds potentially exposing them to 15 billion dollars of debt with one stroke of a pen...payment due today.

Caliden · 17-06-2014 02:05PM

Is there any country who ISN'T in debt??

Seems to be that everyone is loaning each other money while borrowing it from someone else...

I am pie · 17-06-2014 02:07PM

szatan84 wrote: »

Argentina is to comply with a US court order? The way I see it Argentina is outside US jurisdiction so the court order isn't worth a w***. And let me guess, most of the bondholder are American.

When the bonds were issued, no one in the right mind would buy even junk bonds back by an Argentine court, it wasn't clear there would even be an Argentine court, so bad was the crisis. To sell junk bonds they had to issue them in NY via NY state law.

The mistake they made was not using a common clause in the contract including a collective bargaining clause, basically stopping NML capital doing what they are doing now and going on a solo run to sue for 100% payment at 1068% interest overt 6 years.

YFlyer · 17-06-2014 02:08PM

Caliden wrote: »

Is there any country who ISN'T in debt??

Seems to be that everyone is loaning each other money while borrowing it from someone else...

Yeah there must be some spreadsheet of all the countries loans and where they borrowed it from.

I am pie · 17-06-2014 02:14PM

comongethappy wrote: »

Country borrows tens of billions to run its mismanaged state.

Country declines to pay it back.

Apparently some think thats ballsy?

Suck it up, pay your dues & manage your country better.
That ballsy.

Argentina is currently paying 92% of it's debts on time and to a schedule. They have agreed a debt restructuring program with countries such as the UK, US, Japan, EU countries and Aus in the club of PAris. They have paid off the IMF.

What remains outstanding is 8% of their debt who refused to go through a restructuring. They demand 1068% interest over 6 years.

I dont crisis should be an opportunity for usuary and misery should not give 1000% + rates of return.

It's a significant risk to the global economic system. Defaults happen, they need to managed and agreements stuck to for restructuring. If a small minority (on a 50m USD investment) can turn round and say, no, we want 100% and we want 1000% interest then why will anyone ever accept a restructuring event?

Why will anyone invest in anything if they can wait for default events and extract extremen profits suing for full payments on junk bonds?

Do you think you or I if we bought privately issued junk bonds could do the same? No.

Our investment would be at risk as it was categorised as sub investment grade, it's value would be questionable and return not guaranteed. That's kind of the point of junk bonds.

Notably the current US govt is supportive of Argentina's position.

Philo Beddoe · 17-06-2014 02:19PM

Caliden wrote: »

Is there any country who ISN'T in debt??

Seems to be that everyone is loaning each other money while borrowing it from someone else...

I'm fairly certain every country is in debt. Where people get confused is in thinking that countries primarily borrow directly from other countries. Most government debt is owed to banks, investors, financial institutions etc - governments sell bonds which are bought up by these private individuals/organisations as investments.

comongethappy · 17-06-2014 02:26PM

Philo Beddoe wrote: »

I'm fairly certain every country is in debt. Where people get confused is in thinking that countries primarily borrow directly from other countries. Most government debt is owed to banks, investors, financial institutions etc - governments sell bonds which are bought up by these private individuals/organisations as investments.

And fundamentally, you & me.

I'd say the majority of national debt is purchased with deposits & pension contributions.

Phil_Lives · 17-06-2014 02:30PM

bear1 wrote: »

The bottom line is that Argentina borrowed vast amounts of money under Chavez's rule, now that they want the money repaid they are "vultures".

Which Chavez?

bear1 · 17-06-2014 02:34PM

Phil_Lives wrote: »

Which Chavez?

Whoops sorry, my mistake. I was reading two different articles about Venezuela and Argentina

I am pie · 17-06-2014 02:38PM

Phil_Lives wrote: »

Which Chavez?

Indeed!

I suppose they might have meant that Venezuela bought billions of dollars worth of Argentina's debt. Maybe.

The debt (the 8%) was issued originally as bonds backed by NY state law. It was issued in haste (certain standard clauses omitted from the contracts which would have guarded against this arrangement) in a period when Argentina had governments falling, riots in the street and several civilians dying, unemployment was spiralling, the govts froze private bank accounts and many middle class families found themselves with nothing overnight. The

Argentine peso has never recovered and to this day anyone that can save, saves in USD, typically holding the bank notes under the mattress if they are middle class and offshore in US accounts if they are wealthy enough to afford the cash runs to miami.

The Diabolical Monocle · 17-06-2014 02:44PM

Just to add to I am pie's concise and great summation of whats going down.

Over 100 British MP's got together to sign and send an 'amicus curiae' (friend of the court) to the US courts in support of Argentina.

Now that has to tell you something. The British parliament aren't ones to jump to Argentina's political aid but they recognize, as do officials in France who also offered support to Argentina (among others), that the Cayman islands registered NML capital, which has used this same ploy in third world Africa, is something the world can really truly do without.

The owner of NML is an old guy called Singer, a billionaire in his 70's.
In what little time he has left on this planet his preferred pastime is sabotaging well functioning debt deals in order to blackmail countries with the threat of poverty. For over 1000% profit margin of course.

Curly Judge · 17-06-2014 02:47PM

Renegade Mechanic wrote: »

And their leader appears to have more balls than anyone here. Good on her.

You can't eat balls!

everlast75 · 17-06-2014 02:51PM

Caliden wrote: »

Is there any country who ISN'T in debt??

Seems to be that everyone is loaning each other money while borrowing it from someone else...

"What happened to you China - You used to be cool!"

bear1 · 17-06-2014 02:51PM

I am pie wrote: »

Indeed!

I suppose they might have meant that Venezuela bought billions of dollars worth of Argentina's debt. Maybe.

The debt (the 8%) was issued originally as bonds backed by NY state law. It was issued in haste (certain standard clauses omitted from the contracts which would have guarded against this arrangement) in a period when Argentina had governments falling, riots in the street and several civilians dying, unemployment was spiralling, the govts froze private bank accounts and many middle class families found themselves with nothing overnight. The

Argentine peso has never recovered and to this day anyone that can save, saves in USD, typically holding the bank notes under the mattress if they are middle class and offshore in US accounts if they are wealthy enough to afford the cash runs to miami.

I was reading about Venezuelas and Argentinas current problems and got my post mixed up.
I'm not generally a fan of Singer but the decision made was the correct one IMO.
As the bonds were "Pari Passu" and the specific wording used it would have been almost impossible to come to a different decision, hence the weighting in the ruling.
It would be worth noting though that there may have been a different outcome to this had Argentina negotiated with regards to the haircut rather than a take it or leave it offer.
They never negotiated in good faith and this is what got them into this position. The original ruling would have probably gone their way had the judge been able to see that they had negotiated in good faith rather than using the Argentinean version of negotiation in this case which seemed to read something like, "if you don't like this deal, then fcuk-off"

I am pie · 17-06-2014 02:54PM

The Diabolical Monocle wrote: »

Just to add to I am pie's concise and great summation of whats going down.

Over 100 British MP's got together to sign and send an 'amicus curiae' (friend of the court) to the US courts in support of Argentina.

Now that has to tell you something. The British parliament aren't ones to jump to Argentina's political aid but they recognize, as do officials in France who also offered support to Argentina (among others), that the Cayman islands registered NML capital, which has used this same ploy in third world Africa, is something the world can really truly do without.

The owner of NML is an old guy called Singer, a billionaire in his 70's.
In what little time he has left on this planet his preferred pastime is sabotaging well functioning debt deals in order to blackmail countries with the threat of poverty. For over 1000% profit margin of course.

Mr Singer and his band of vultures specialise in this operation, they have outstanding cases against various sovereign countries around the world. Puerto Rico I believe is next.

They seek out distressed debt and profit from misery at a rate which other investors can only dream of.

Argentina to burn bondholders in defiance of US court ruling

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