Argentina to reopen debt swap
The Economist, August 27, 2013
Event
In late August a US appeals court upheld the ruling of a New York court, which forces Argentina to repay litigant "holdout" creditors (who did not accept the terms of debt restructurings in 2005 or 2010) in full. The government has responded by announcing a reopening of the 2010 debt exchange.
Analysis
The US appeals court decision will not be enforced until the US Supreme Court decides whether it will take up a request by Argentina to review the case. Legal experts have suggested that the Supreme Court is unlikely to reverse the appeals court decision, and may not take up the case. Probable delays in the legal process mean that a decision is unlikely before early 2014.
In the interim period, the government appears to be trying to encourage holders of restructured debt voluntarily to agree to exchange their bonds issued under New York law for local jurisdiction bonds. Although Argentinian officials have suggested that they want the 7% of creditors who had not yet restructured their debts to join in the swap, this is extremely unlikely, especially after the US appeals court decision in favour of litigant holdouts. Instead, the authorities appear to be attempting to avoid payment disruptions to current creditors in the likely event that Argentina refuses to comply with an unfavourable court ruling.
By agreeing a voluntary restructuring, Argentina will hope to avoid a technical default. However, it is unclear whether the swap of foreign-jurisdiction bonds with local-jurisdiction bonds (terms that would be considered prejudicial)—when the alternative appears to be non-payment of New York law bonds—constitutes a voluntary restructuring.
Impact on the forecast
The Argentinian authorities continue to stress that they will not pay litigant holdout creditors in full, regardless of any US court ruling. Meanwhile, legal experts suggest that a favourable ruling for Argentina from the US Supreme Court is unlikely. Under these circumstances, we continue to believe that, despite the reopening of the debt swap, there is a strong risk of technical default by Argentina, although this now appears unlikely to happen until 2014.
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