Argentina playing last cards in court battle with bondholders

Mon Nov 26, 2012 1:04am EST
 

By Helen Popper and Daniel Bases

BUENOS AIRES/NEW YORK (Reuters) - Argentina will make a last-ditch attempt this week to stall a U.S. court ruling that has shaken the nation's strategy to put a 2002 debt crisis behind it and fueled fears of a fresh default.

A decade since it staged the biggest sovereign default in history, Argentina faces a stark choice between depositing $1.3 billion before December 15 to pay "holdout" creditors who rejected two debt restructurings, or jeopardizing payments to all its bondholders.

About 93 percent of bondholders agreed in 2005 and 2010 to swap defaulted debt from the 2002 default for new paper at a steep discount.

But U.S. District Judge Thomas Griesa last week ordered Argentina to pay the holdouts, led by Elliott Management Corp's NML Capital Ltd and Aurelius Capital Management, who rejected the swaps and are fighting for full repayment in the courts.

The ruling was a huge setback for Argentina's combative, left-leaning President Cristina Fernandez, who calls the holdout funds "vultures" and has vowed never to pay them.

It also dismayed investors who took part in the two debt swaps and fear the G20 country will now enter into "technical default" on about $24 billion in restructured debt.

Fernandez's decision to vilify holdouts - who are loathed by most Argentines - makes payment a difficult prospect, and a local law prohibits offering a better deal than that given in the swaps. Doing so might expose Argentina to lawsuits from creditors who tendered their paper.

On the other hand, another default - albeit a technical default - would tarnish Fernandez's record on managing the economy, deepen Argentina's isolation from global financial markets and hit investment at a time of sluggish growth.   Continued...