Welcome to #GrieFault day. That’s twitter’s hashtag for the Argentine technical default, caused largely by a series of court rulings by U.S. federal court judge Thomas Griesa, which was triggered this afternoon. That is to say that the ratings agency S&P cut the country’s credit rating to selective default. The country’s representatives are still negotiating with bondholders in Manhattan as of this writing. This was the story yesterday:
After missing an interest payment on its bonds on June 30 (previous coverage in the saga here and here), the country had a 30 day grace period to reach a settlement with its holdout creditors — mostly the hedge fund Elliott Management — in order to avoid default. That grace period is up Wednesday.
As Matt Levine points out, Argentina is obligated to pay today in all of the different places it has bondholders (there are peso, dollar, euro, and yen-denominated bonds). Because of time zone complications, Argentina is now technically in default (according to one credit agency), but the details are unclear. The important point is negotiations are ongoing. Here’s what we know about those, according to various Reuters stories:
Last night the country’s economy minister, Axel Kicillof, showed up in Manhattan to finally have those talks they were ordered to have roughly 30 days ago. It seems Argentina has something of a plan, wherein a consortium of Argentine banks scoops up the debt held by the holdouts. A senior banking executive familiar with the offer told Reuters today that “the idea is to sit down with the funds and buy all their debt. We have to negotiate the final amount, the terms and how payment will be made.”
Another Reuters report confirms that “negotiations are now revolving around how much local banks need to deposit as a goodwill gesture to give Adeba time to negotiate a way to pay holdouts themselves.” The banks would presumably be much more amenable to the plight of the Argentine government, which currently doesn’t have the money to cover its outstanding bonds in the event of a default, largely (the government thinks) because of the Rights Upon Future Offers (RUFO) clause on its bonds.
Joan Magee and Davide Scigliuzzo explain Argentina’s argument: The RUFO clause “prohibits it from voluntarily paying the holdouts, who are demanding full payment on their bonds, better terms than the 25 to 29 cents on the dollar the other investors accepted … Argentina fears that it may face billions of dollars of claims from investors who accepted the restructuring should it pay the holdouts in full.”
This would be Argentina’s second default in 12 years, and one in a series of economic crises over the last century. For the truly nerdy (like us), Reuters has compiled a chronological history of major problems in the Argentine economy.
Kicillof is scheduled to hold a press conference at the Argentine consulate in New York at 5:30 pm. Updates forthcoming. The press conference is live here (in Spanish).
Reuters is reporting that Argentina’s debt mediator, Daniel Pollack, says that Argentina “will imminently be in default.” The full statement from Pollack is here. During his press conference, Kicillof dug his heels in. He didn’t reach an agreement with what Argentina calls the “vulture funds” after offering them the same terms as previous debt swaps. He repeated much of what Argentina has said in the past: Argentina paid its June 30 interest payment (Judge Griesa ordered Bank of New York Mellon to return it), it doesn’t make sense to have a deal with the hedge funds and not other holdouts, the country will make every effort to continue to service the exchanged debt. Kicillof also says he will return to Argentina today