Argentina Makes Bond Payment Despite Contempt Ruling

Argentina deposited $161 million for a local trustee to make an interest payment on bonds restructured from a 2001 default on $100 billion, the country said Tuesday.



The action comes a day after a U.S. court found Argentina in contempt of its order to pay other creditors from the default.



The funds were deposited into accounts of Nacion Fideicomisos, a state-run trustee, at the central bank for paying holders of British, U.S. and Welsh-law bonds that the country restructured in 2005 and 2010 at 30 cents on the dollar, the Economy Ministry said in a statement.



Nacion Fideicomisos replaced Bank of New York Mellon as the paying agent after the latter failed to distribute a $539 million bond payment in July, pushing the country into its second default in 13 years.



Bank of New York Mellon said at the time that it couldn't complete the payment without violating a U.S. court order requiring Argentina to pay plaintiff creditors $1.5 billion at the same time, something that the government has refused to do on concerns that it will spark other lawsuits for more than $120 billion.



The default led President Cristina Fernandez de Kirchner to get congressional approval to offer the 92.4 percent of creditors with restructured bonds from the $100 billion default to swap their U.S.-law bonds for new ones under Argentine law and have it paid out of Argentina via Nacion Fideicomisos.



The plan, however, drew the disapproval of Thomas Griesa, the U.S. federal judge on the case.



Griesa ruled Monday that Argentina is in contempt of his order to pay the litigants, a group of hedge funds including one run by New York billionaire Paul Singer.



These creditors refused to accept the 30 cents on the dollar in the restructuring offers and pursued legal channels to collect full repayment.



It is a strategy that has been used against other countries in default such as Liberia and Peru. The hedge funds buy defaulted bonds on the cheap in secondary markets and opt out of restructuring offers with the hope of getting a legal order to collect full repayment plus penalties and interest.



With Argentina, creditors stand to collect a profit of more than 1,600 percent on their investments, according to the government's calculations.



Argentina has refused to pay these creditors, whom it calls vultures, more than the 92.4 percent, saying that such a move could spark a rights upon future offers clause on the restructured bonds. That clause allows the restructured bondholders to collect anything better offered to the holdouts, or up to 70 cents on the dollar. The total claims could surpass $120 billion, according to government calculations.



The clause expires at the end of 2014, when the government can freely settle with the plaintiffs and other holdouts with claims of up to $15 billion.



Esteban Fernandez Medrano, an economist at MacroVision Consulting in Buenos Aires, said the contempt ruling could run up the clock and prove a benefit for Argentina.



"This could delay things for a while longer, which is what the government wants, to stretch things out to 2015," he said.



The delays will come because by finding Argentina in contempt, Griesa in effect pushes to case to the U.S. government to decide what to do in terms of actions against the country.



Fernandez Medrano said that the Barack Obama administration has expressed discontent with the holdouts and Griesa's ruling, but added that Republicans could lobby his government to take steps to get Argentina to settle with the plaintiffs.



This could come in the form of commercial and financial restrictions on Argentina, such as Spain did after Argentina expropriated Madrid-based Repsol's majority stake in YPF, the biggest energy company in Argentina. After the takeover in 2012, Spain retaliated by halting imports of Argentine biodiesel.



"Something like this could happen," he said.



Another question is whether Nacion Fideicomisos can complete the distribution of the funds to creditors, given that it would have to get the bank account and related information for each bondholder from Bank of New York Mellon.



"If it gets access to the information, then it will pay," Fernandez Medrano said. "But the perception is that it is not going to be too easy to pay in the next 30 days."



Argentina has a 30-day grace period to complete the $161 million interest payment or fall into default again.



www.aa.com.tr/en - Ankara