It’s getting hotter for Argentine President Cristina Kirchner (above) thanks to hedgie Paul Singer, who wants $1.3 billion he is owed by the country. (Reuters)
The knock-down, drag-out battle between Paul Singer’s Elliott Management and Argentina could push the South American nation into default again.
A recent court ruling that holds Argentina must treat all creditors equally could drag bondholders who agreed to a debt swap seven years ago into the fray. If that happens, it could trigger a default on more than $29 billion of debt that is now in good standing.
Add that to the billions owed to holdouts like Elliott, which is fighting to be paid in full, and the default total is likely more than the $40 billion Argentina has in dollar reserves.
Payments of about $3.85 billion to bondholders of the exchanged debt are due in December. Unlike Elliott, these holders previously agreed to a 70 percent writedown on the sovereign debt.
Elliott won a huge victory on Oct. 26 when a federal appeals court ruled that Argentina must make payments to the New York hedge fund and other holdouts each time it pays bondholders who accepted the restructuring. The court also sent the case back to the lower court to hammer out the details.
On Tuesday, Elliott asked the court to map out those details by next week. If the court moves that quickly, the holdouts say they are in line to receive $1.34 billion in December.
Argentina has remained adamant in its opposition to Elliott. President Cristina Kirchner said her government would not pay “one dollar to the vulture funds,” while insisting it would continue to pay the other bondholders.
That is going to be hard to do. Under the court ruling, Bank of New York Mellon, which is the trustee that makes interest and principal payments to the other bondholders, won’t be allowed to do so unless it also pays Elliott. Nor will others working with Argentina — including the Depository Trust Corp., Euroclear and law firm Cleary Gottlieb — be able to help it find ways around the order.
A spokesman for BNY said, “As trustee we make the bond payments. We have nothing to add at this point.” The other institutions could not be reached.
A spokesman for Elliott declined to comment. Jonathan Blackman, the Cleary Gottlieb lawyer representing Argentina, could not be reached.
Some of the other bondholders are annoyed at Elliott for dragging them into the fray, according to Hans Humes, the president of hedge fund Greylock Capital who helped negotiate the original debt restructuring in 2005.
Others, including Humes, said if they don’t get paid they are prepared to call for a default.
“Then everything is payable immediately,” Humes said. Since that would crush Argentina economically, he said that could finally push Kirchner to negotiate with Elliott.
The standoff between the hedge-fund billionaire and the populist president has led Argentina’s performing bonds to fall about 17 percent to about 63 cents on the dollar since the appeals court ruling.