Argentina has gone into default after not getting a $539 million payment to bondholders. A default has been likely since a number of New York hedge funds, demanding that the South American nation pay them back in full for government bonds that defaulted in 2001, won their claims in court.
A federal district court judge in Manhattan ruled in 2012 that Argentina could not keep regularly paying its main class of bondholders, without paying the hedge funds. They refused to accept new exchange bonds as a trade for the defaulted securities. The older bonds have far greater value.
Among those “holdouts” were individual investors and hedge funds, such as Aurelius Capital Management and Elliot Management’s NML Capital. Billionaire Paul Singer owns Elliot Management. Argentina owes the hedge funds over a billion dollars.
Argentina’s financial woes goes back to its formal default in 2001, which it declared after several years of recession and its inability to pay foreign creditors for loans made. Since then, there have been two restructurings. The Argentina government made a deal with most of its bondholders, now known as exchange bondholders, who traded their bonds in for bonds that had less value. The hedge funds, however, refused to take part.
The bonds that Argentina defaulted on 13 years ago were issued under New York law.
Judge Thomas Griesa, who issued the 2012 ruling, said that any financial firm that paid exchange bondholders without the hedge funds getting their payments would be in contempt. As a result, the $539 million that Argentina placed with the Bank of New York Mellon (BK) to pay bondholders was not transferred out. Last month, the U.S. Supreme Court turned down an appeal made by Argentina.
Payment to main class bondholders, who consented to a lesser payment than what is owed to them, was scheduled for last Wednesday. However, even after a court appointed mediator met with Argentina and hedge fund representatives for several hours, a resolution could not be reached. Argentine Economy Minister Axel Kicillof said his country couldn’t pay the hedge funds because this would trigger clauses that would mandate that the nation give other bondholders similar terms.
Griesa, however, insists that the talks must go on.
S.&P. Says Argentina Has Defaulted, New York Times, July 30, 2014
Everything you need to know about Argentina’s weird default, Washington Post, August 3, 2014
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