Argentina’s Bondage – (UPDATED)

The following is blog post I made over at theriskyshift.com. Although recently published, it was written at the end of March/start of April. Since the writing of this piece the US Appeals Court ruled that the Bond holders must respond to Argentina’s offer of restructuring by the 22 of April. On the 20th of April the bondholders (I keep writing bongholders lol) rejected the proposed settlement. This rejection (although not surprising as they have rejected a similar proposals in the past) has us back to square one with Argentina refusing to pay it’s debts and the bondholders refusing to accept a settlement resulting in a stalemate.

A new wrinkle in the case is the interjection of the other bondholders (Exchange Bondholder Group) who have accepted the Argentina’s bond restructuring. This group represents 91% of total owed bondholders and they filed an amicus brief against their fellow bondholders stating that this case and the previous ruling threatens the value of the bonds that are owed to them, All the while, the clock is ticking on Argentina’s debt and possible default inches ever closer for an country with an economy that is 20 times that of Cyrpus. .

The following is the original blog post made at theriskyshift.com

It isn’t that often that you see a country defending itself in a US court. But in the last week of March Argentinian representatives were in New York district court trying to defend their country over its 2002 default on $100 billion national debt.  This hearing was a part of an ongoing legal battle over a portion of this debt which was not restructured after the initial default and the negotiated restructuring that occurred in both 2005 and 2010. This eleven year legal battle over an outstanding $370 million dollars was the catalyst for the seizure of an Argentinian Naval tall ship  in Ghana in October 2012.

The plantiffs in this cases which include hedge funds and individual investors have argued that if Argentina has been capable to pay back portions of their restructured bonds, they are capable to payback the same portions to the non-restructured bonds (equal step clause).  Argentina fears that if the court rules against them, it will cause a surge in “what about me” claims where restructured bond holders then begin asking for full payments again; this is why the Argentinians have made three separate offers to the outstanding bond holders to restructure and discount their holdings, all of which have been refused.

As result of these debt concerns the price to insure Argentina bonds has risen and unless another settlement is reached the country is set to default on payments due at the beginning of June. So while the world watches the people of Cyprus suffer as the pain of the recent bailout cripples their nation, a country with an economy 20 times its size is on its own path to default.

Read more: http://theriskyshift.com/2013/05/argentinas-bondage/#ixzz2SZeGsnp0

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