Argentina's debt swap, scheduled for today, has been delayed temporarily following a decision by a US judge to hold his judgment on creditors' claims to seize the defaulted bonds.
Although ruling in favour of the Argentine government's demand to lift a preliminary freeze granted last week to creditors on $7 billion of the defaulted bonds, Judge Thomas Griesa of New York's Southern District Court moments later postponed his decision late Tuesday until a US Appeals court reviews the case – effectively maintaining the freeze.
The move is likely to add fuel to other creditors' attempts to put pressure on Argentina after the sovereign persuaded investors holding 76% of its bonds to swallow its unprecedented restructuring offer. A final decision against Argentina in the appeals court could undermine the entire debt restructuring process.
"The embarrassing delay in the restructuring will be a grim reminder to the Argentine government that the holdouts will be a constant nuisance," says Walter Molano, managing partner at BCP Securities.
NML Capital, a Cayman Islands based hedge fund that rejected Argentina's offer, urged the court to freeze $7 billion of bonds, on the grounds that they belong to the Argentine government and are therefore a legitimate target.
Judge Griesa, however, ruled that the hedge fund – the first creditor to try to seize defaulted assets – could not lay claim to the bonds, held by the Bank of New York, in compensation for its $361 million of defaulted debt, since the frozen bonds still belong to investors who tendered them in last month's exchange.
Analysts believe it is unlikely for the appeals court to rule against the Argentine government, since the bonds do not legally belong to Argentina. However, the final decision not only impacts the original swap timetable – it also paves the way for many other potential lawsuits from disgruntled creditors representing $20 billion in holdouts, in coming months.
NML is believed to be pressurizing Argentina at a crucial moment in the hope that the government will pay out to avoid further snags, thereby banking on a precedent set by Elliott Associates, which is linked to NML Capital, in its case against Peru in the 1990s.
The risk is that a collapse of the whole exchange would be to everyone's disadvantage, as it would effectively wipe out three years of often acrimonious negotiations, forcing the process back to square one.