Argentina’s dollar-denominated debt dropped on speculation the government’s offer to pay defaulted debtholders on similar terms as past restructurings will spur a United States court to order the nation to pay in full.
The government’s restructured notes due in 2033 plunged by 2.74 cents to 51.01 cents on the dollar in New York, according to data compiled by Bloomberg.
The yield on the bonds jumped by 84 basis points or 0.84 percentage point, to 17.33 per cent, representing the highest level on a closing basis since June 2009.
Concern is mounting that an appeals court order forcing Argentina to pay hedge fund Elliott Management Corporation and other holdout creditors in full would prompt the country to halt payments on the notes from the 2005 and 2010 restructurings.
An attorney for Argentina told the appeals court in February that the nation would not obey a lower court order to pay the holdouts the full amount, which totals more than $1bn.
The lower court order forbids Argentina from servicing the restructured bonds without paying the holdout creditors, meaning an upholding of the full payment ruling could trigger a new default.
“The Argentines made no compromises” in their new payment offer, said Eric Fine, who helps oversee about $5bn of emerging market assets at Van Eck Global in New York. They are “playing for either delay or confrontation, neither of which is positive.”
The South American nation filed its payment proposal on March 29, an hour before a deadline was set to expire, in a bid to get the appeals court to strike down the lower court’s payment order.
Economy Minister, Mr. Hernan Lorenzino, told reporters March 30 in Buenos Aires that the offer satisfies the request of the court to treat bondholders equally.
“The proposal could be characterized as a simple ‘carbon copy’ of the 2010 restructuring offer,” Vladimir Werning, an economist at JPMorgan Chase & Company wrote in a note to clients. “We do not anticipate the judges to support the ‘cram down’ being requested by Argentina.”
Argentine bonds had rallied by 2.3 per cent on March 28 on speculation that President Cristina Fernandez de Kirchner would make an improved offer to holdouts that included past-due interest on the defaulted bonds.
In the country’s 2010 restructuring, investors’ eligible claims were limited to principal and interest accrued on the defaulted securities until the end of 2001. The government halted payments on $95bn of bonds late that year, marking a record sovereign default.