Argentina Vows to Defy Court Order

Argentina plans to challenge a US judge’s ruling in an appeals court, its economy ministry says, after the sovereign was ordered last week to pay $1.3bn to its holdout creditors and not to pay other bondholders until it satisfies this judgment. The government has reiterated its vows not to pay “vulture” funds, but last week’s order could complicate the process by which Argentina pays creditors who accepted its 2005 and 2010 bond swaps. Argentina has coupon payments due in December to these holders. Once Argentine funds reach the US, the court could force Argentina’s agent bank, Bank of New York Mellon, to also pay the holdouts, Nomura says in a report. This would effectively trigger a default since the coupons on the restructured bonds will not be paid in full, the shop says. Options to avoid such a default would include a settlement with the bond swap creditors, making payments in pesos in Argentina or having the case accepted by the US Supreme Court, Nomura says. Bulltick notes the judgment offers a lack of options for the Bank of New York Mellon and other third parties, and says bondholders would likely sue the bank if their payments don’t go through. “This decision goes way beyond Argentina, and creates a very negative precedent for future debt restructurings,” the shop notes. The court had ruled last month that Argentina can no longer discriminate among creditors by only making coupon payments to those who accepted the bond swaps.