Argentina has deposited the next payment needed to avoid a default on its restructured bonds, but a U.S. federal court decided on Thursday not to let the payment go through Both moves increased the stakes in a 12-year legal chess game between Argentina and creditors who refused to accept the downgraded terms offered by the country’s 2005 and 2010 debt restructurings and are suing for full repayment.
Argentina will have the month of July to negotiate with its holdout creditors before falling into technical default. The next payment is due on Monday, but with that payment blocked by the courts, Buenos Aires will have a 30-day grace period to strike a deal with holdout creditors.
If it fails, Latin America’s No. 3 economy would be pushed into another painful default at the end of next month.
Economy Minister Axel Kicillof said Argentina owes a $832-million coupon payment on restructured bonds on Monday.
“Of that total, $539-million was deposited in the accounts ... of the Bank of New York Mellon at the Central Bank of Argentina,” Kicillof said, adding that the rest of the $832-million had been deposited by way of other financial institutions.
“We affirm our commitment to honor our debt to all creditors,” he said.
But in order to pay holders of the country’s restructured bonds, Argentina needed a stay to be issued by U.S. District Judge Thomas Griesa in New York. He denied the Argentina’s stay request about an hour after Kicillof said the deposit had been made.
Argentina’s debt servicing costs are set to more than double in 2015 as it’s economy stagnates, inflation soars at about 30 per cent and foreign reserves slide to critically low levels.
Central bank reserves, which fell 30 per cent last year and stand at eight-year lows of about $29-billion, are seen falling in the second half of 2014 after Argentina’s main farm exports, soy and corn, are harvested and sold.
But Argentina’s financial markets slipped only slightly on the news of Griesa’s rejection, as investors bet that the country will use the 30-day grace period to strike a deal with the holdouts.
Griesa has ordered Argentina to pay the holdouts $1.33-billion plus accrued interest, at the same time it pays the 93 per cent of bondholders who accepted the 2005 and 2010 restructurings. Argentina had asked him for a stay on that order in order to allow Monday’s coupon payment to go through.
The restructured bonds, stemming from Argentina’s $100-billion 2002 default, offer less than a third of the original value of the debt. The holdouts have sued in the U.S. courts to be repaid 100 cents on the dollar.
The debt drama is being played out in New York this week, where Griesa’s order includes an injunction against Bank of New York Mellon and other payment agents from transferring money from Argentina to its restructured bondholders.
Also in Manhattan, lawyers for the holdouts and Argentina raced against the clock to clinch a deal for settling the 7 per cent of defaulted bonds that were not restructured.
Griesa appointed a mediator to oversee the talks.
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