Defaulted Debt Trading Sinks as Elliott Bets on Courts: Argentina Credit (Nota de color para CRIA)
Trading in Argentine defaulted debt is drying up as creditors from billionaire investor Kenneth Dart to Elliott Management Corp. seek to obtain full payment on their $4.5 billion of bonds in court.
Investors may have traded about $1 million of defaulted Argentine bonds once in the past three months, down from daily trades of $5 million before the government completed a $12.9 billion debt restructuring in June, according to Exotix Ltd., a London-based brokerage that specializes in distressed securities.
President Cristina Fernandez de Kirchner’s debt swap whittled the group of remaining creditors to investors Economy Minister Amado Boudou called “vulture funds” on June 23. Dart’s EM Ltd. and Elliott’s NML Capital, which are looking for assets to seize with attachment orders from U.S. court judgments, also form part of a group of creditors who may prevent Argentina from selling bonds in international markets for the first time since its 2001 default on $95 billion.
“You are now left with a hard core of intransigent, hold- out investors who evidently decided that they’re in it for the long run,” said Arturo Porzecanski, an international finance professor at American University in Washington. “It’s a more professional group, it’s a more resilient group. They’re not going to give up. They’re determined to prevent Argentina from ever issuing bonds in the overseas market.”
The price of defaulted Argentine bonds sank to about 35 cents on the dollar last week from 49 cents in April, when the government unveiled the terms of its restructuring.
Judgments
Boudou said June 23 that creditors holding $4.5 billion of the securities were seeking to obtain payment through litigation. Last month, a U.S. appeals court ruled that Argentine assets administered by a U.S. bank were properly attached to pay Dart’s EM Ltd. and Elliott’s NML Capital. NML and EM have won judgments against Argentina that total, with interest, $2.4 billion, U.S. District Judge Thomas Griesa said in May.
David W. Rivkin, a lawyer for EM, and Scott Tagliarino, a spokesman for Elliott Management, both in New York, declined to comment.
“We’re no longer in a market in which everything trades as a commodity based on an upcoming exchange now that an upcoming exchange is unlikely,” said Diego Ferro, who helps manage $400 million in high-yield, emerging-market debt at Greylock Capital Management LLC in New York. “Eventually an administration may come in and clean up the whole problem. It’s a much more nuanced and targeted approach now if you’re holding debt.”
‘Enormous Effort’
Greylock participated in this year’s debt swap, according to Ferro, who declined to say whether the fund held on to any of its defaulted notes. Greylock isn’t pursuing litigation, he said.
The next government shouldn’t rush to clear the remaining debt, according to Francisco de Narvaez, a congressman who last year led a slate of candidates who beat former President Nestor Kirchner and his allies in mid-term congressional elections and who said he may run for president next year.
“Argentina has made an enormous effort to get out of the default with terms that, I insist, have been excessively generous,” de Narvaez said in a Sept. 13 interview in Buenos Aires. “It wouldn’t be a priority for me.”
The extra yield investors demand to hold Argentine dollar bonds instead of U.S. Treasuries fell three basis points, or 0.03 percentage point, to 659 at 3:33 p.m. New York time, according to JPMorgan Chase & Co.
Debt Buyback
The cost of protecting Argentine debt against non-payment for five years with credit-default swaps rose three basis points to 771, according to data compiled by CMA DataVision. Credit- default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to debt agreements.
The peso was little changed at 3.9491 per dollar.
Warrants linked to growth in South America’s second-biggest economy increased 0.26 cent to 11.83 cents, according to data compiled by Bloomberg.
Argentina’s plan to buy back 8.7 billion pesos ($2.2 billion) in debt doesn’t solely target the warrants, Finance Secretary Hernan Lorenzino said in a Sept. 17 phone interview. The debt buyback was included in the 2011 budget sent to Congress Sept. 16.
In 2005, Kirchner offered holders of defaulted debt a restructuring worth about 30 cents on the dollar. Holders of about $20 billion in bonds rejected that offer.
“The amount outstanding is minimal and those holding it are holding it for a reason,” said Amir Zada, a New York-based director at Exotix.
To contact the reporters on this story: Drew Benson in Buenos Aires at
abenson9@bloomberg.net; Ben Bain in New York at
bbain2@bloomberg.net
