Argentina’s future in the
cross-border bond markets depends on a hearing this month in a US federal appeals court in New York City.

The hearing, scheduled for April
13, will determine whether injunctions banning the sovereign from issuing in the
cross-border markets will be lifted.

The Argentine Senate approved a deal on Thursday to settle the government’s dispute with holdout creditors. The bill has already passed the lower house and President Mauricio Macri just has to sign it into law. But the deal will not take effect if the US Court of Appeals for the Second Circuit does not lift the injunctions and bondholders do not agree to forgo further litigation.

After a 13-hour debate, Argentina’s Senate voted 54 to 16 in favor of the bill, repealing the lock law and and the sovereign payment law, two conditions imposed by US District Judge Thomas Griesa to lift the injunctions. Moody’s analysts called the Senate vote a credit positive step.

Argentina is expected to submit documents to the appeals court that show the government has complied with Griesa’s demands. The government has reached a deal with the major holdout creditors, including US hedge fund Elliot Management, but the injunctions
remain in place because some bondholders who were not part
of the original group of holdout creditors filed an appeal in February to keep pari-passu injunctions in place.

“A technicality is that the agreements in principle set April 14 as the settlement deadline, given that there was no knowledge at the time about the date for the hearing set later by the appeals court,” said a spokesperson from Argentina’s finance ministry. “Now the settlement deadline needs to be redefined to put an end to this matter. It is in the common interest to set the earliest possible date once all legal matters are sorted out.”

According to a lawyer familiar with the case, the appeal presents complicated questions for the court. The injunctions state Argentina must settle with all bondholders, including the major holdout creditors and a wider pool of smaller bondholders, before it can issue cross-border bonds, but the country needs to access the international markets to raise the money to pay the settlements, he explained.  

“I don’t know how the court will interpret the arguments. Unless a resolution is reached with everybody, the country is technically not complying. I don’t know how the court will weigh them all,” the lawyer said.

Argentina is expected to sell up to $12.5bn in debt, whether from cross-border bonds or local bonds, loans or other financial instruments, to raise money for the settlements. But sources said the government cannot schedule an official roadshow until the legal problems are resolved, sources said.

JPMorgan is understood to have been mandated as a bookrunner for a possible multi-tranche bond offering, while HSBC and Santander are also thought to be on the deal, LatinFinance understands.

HSBC, JPMorgan and Santander each
allocated $1bn to a one-year $5bn bridge loan to Argentina’s central
bank. The loan also included $500m
tickets from BBVA, Citi, Deutsche Bank and UBS,
which are also understood to be part of a potential cross-border bond issue, sources
said.

Argentina’s fiscal deficit stood at ARS361bn ($24.7bn) at the
end of February this year, while the central bank’s reserves reached roughly $30bn
by March 23, according to research from local bank Supervielle. The treasury’s international
reserves have risen $4.3bn so far in 2016, helped by Issues from YPF and the
province of Buenos Aires.

YPF sold a five-year
$1bn bond earlier this month. Bookrunners Credit Suisse, HSBC and JPMorgan
priced the bond at par with an 8.5% coupon. The Province
of Buenos Aires in March priced an eight-year $1.25bn bond at 98.741 with a
9.125% coupon to yield 9.375%.