Argentina closer to defaulting on $1.3 billion debt after U.S. federal judge’s ruling
New York (AFP) – Argentina moved a step closer to defaulting on its debt Thursday after a US federal judge refused to freeze an order for it to pay off hedge funds holding $1.3 billion in bonds.
The country said it deposited $832 million into US banks to pay principal and interest due Monday to creditors holding the country’s restructured debt.
But New York judge Thomas Griesa denied a stay requested by Buenos Aires on his order to pay, at the same time, hedge funds NML Capital and Aurelius Management, which refused to take part in the country’s 2005 and 2010 debt restructuring.
That left Argentina under order to pay both at the same time, by the June 30 deadline, and banks processing the payments forbidden to pay one without the other.
Argentina though continued to negotiate with the hedge funds to avoid being forced into default, pledging to make good on its debts
Late Thursday, the Manhattan district court announced a hearing in the case would take place Friday morning, but there was no sign of whether or not that meant a breakthrough in the talks.
- Argentina promises to pay -
“We do not contemplate not paying, if we have the resources; our intention is to pay the bondholders,” Economy Minister Axel Kicillof said early Thursday.
Kicillof was speaking before Griesa refused the stay, and the money transferred clearly was not enough to pay both creditor groups on Monday.
That left the country poised to default on its debt for the second time in 13 years, if a payments deal cannot be achieved with the hedge funds by Monday.
On June 16, Argentina lost its final appeal to the US Supreme Court against paying what it calls “vulture funds,” bond speculators which in the 2000s refused to participate in a restructuring of the country’s bonds after it defaulted on nearly $100 billion in debt.
Around 92 percent of the debt was covered in the restructuring, with those creditors forced to take steep 70 percent writeoffs of the value of their bonds to help the country restructure its finances.
Argentina has argued it is unfair to the restructured bond holders to pay the holdouts 100 percent of the value of their bonds, noting also that no sovereign debt restructuring could go through if holdouts had such rights.
The country also says the full size of the outstanding holdout bonds, held by the hedge funds and others, was over $16 billion, more than half its foreign reserves.
Being forced to pay all that in one sum would overwhelm its weak finances, Buenos Aires says.
But Griesa’s 2012 decision, accepted by the Supreme Court last week, was that the bond contracts under US law allow the hedge fund holdouts to claim full payment
NML and Aurelius hold bonds valued at $1.33 billion, and said in a letter to Griesa this week that, with other costs, the maximum the country would have to pay them is $1.65 billion.
Griesa this week agreed to oversee negotiations between Argentina, with the country reportedly seeking to find a way to avoid having to pay the whole amount up front.
On Wednesday, he appointed a New York lawyer, Daniel Pollack, to preside over the talks.
[Image: "Judges Wooden Gavel With Very Old Books And Paper," via Shutterstock]