President Presents Bill to Pay Bondholders Under Local Law

President Cristina Fernández de Kirchner has announced plans to create domestic payment channels for holders of its dollar-denominated bonds and circumvent a US court ruling preventing credit payments. The proposal will also include an offer for bondholders to swap their titles for ones of identical value issued under Argentine law.

Argentina has been in a ‘technical default’ since 31st July after failing to make a credit payment to bondholders that entered into debt restructurings in 2005 and 2010.

Though the US$539mn payment had been deposited on time, New York Judge Thomas Griesa ordered trustee Bank of New York Mellon (BoNY) to retain the funds until Argentina reaches a settlement with vulture funds seeking full repayment on defaulted debt from the country’s 2001 crisis.

According to the proposed bill, which the president presented in a televised broadcast last night, BoNY would be replaced as the trustee bank for exchange bondholders by state-run Banco Nación. The bank would be able to make payments to bondholders via a special account at the Central Bank.

The bill also states that exchange bondholders could choose individually or collectively to swap their existing bonds for new state bonds for the same nominal value governed by Argentine law.

The new law will also create a special account for the bond holdouts, which represent 7.6% of the total defaulted debt from 2001, to deposit payments on the same terms as those who accepted the restructurings. This, informed, President Fernández, would represent a profit of 300% for the vulture funds leading litigation against Argentina.

“Let no one say that Argentina refuses to pay. The Argentine government refuses to be extorted.” said the president, who admitted she was feeling nervous due to the “great injustice” facing the country.

Reactions

The bill was sent to Congress immediately after the president’s tv address, with deliberations in committee expected to begin in the next week.

Economy Minister Axel Kicillof said today that the main purpose of the law was to complete payment obligations locally because they were obstructed in New York. “If the Bank of New York adheres to what Judge Griesa says, Argentina will present the possibility, if they want, for bondholders to be paid here,” said Kicillof. “It is not a compulsive change of jurisdiction, but a method of ensure Argentina can continue to meet its external debt obligations.”

Head of the opposition PRO, Buenos Aires Mayor Mauricio Macri, was quick to announce that his party would vote against the legislation. “It’s like saying that, in our view, the German goalkeeper committed a penalty in the World Cup final, therefore we don’t recognise Germany as World Champion and we invite them to play a rematch here in Argentina with [local judge] Oyarbide as referee,” said Macri in a press conference earlier today.

Argentina’s benchmark restructured bonds fell around 2% in early trading this morning. Bloomberg reported that JP Morgan released a note to clients calling the president’s announcement “a bucket of cold water” for those expecting a relatively swift resolution to the debt problem at the start of next year.

Economists in the US noted that some investors and banks may be reluctant to enter into a deal with Argentina for fear of being held in contempt of court by Judge Griesa, who has previously said any swap agreement would be illegal.

The post President Presents Bill to Pay Bondholders Under Local Law appeared first on The Argentina Independent.