Argentina's finance secretary Guillermo Nielsen yesterday bluntly rebuffed claims made by creditors that the country's decision to delay its debt exchange offer, originally scheduled for April 1, was "baseless." Nielsen instead maintained that the $62 billion debt swap is "not practicable," because it requires the old bonds to be cancelled first – something which he argues cannot happen, thanks to last week's decision by a New York judge to defer his decision on creditors' claims to seize $7 billion of defaulted bonds, pending an appeal.
The judge's decision "has the effect of preventing - for the time being- such cancellation to be effected," said Nielsen in an interview with Emerging Markets.
Creditors vying to seize defaulted bonds issued by Argentina yesterday stepped up their assault on the Latin nation. NML Capital, the Cayman Islands hedge fund that rejected Argentina's exchange offer last month and which is the plaintiff in the action to get hold of the defaulted debt, issued a statement.
"Argentina's claim that the attachment of $7 billion of the $62 billion of tendered bonds prevents it from settling the exchange offer is baseless. Argentina can complete the exchange offer at any time by delivering new securities to all of the tendering bondholders and taking possession of over $55 billion in tendered bonds that are not subject to attachment," it read. The firm added that because it had already announced its acceptance of the tendered bonds, "Argentina is contractually required to settle the exchange."
Sources close to NML Capital also told Emerging Markets that the sovereign had no sound basis for delaying its debt exchange offer. The implication, according to analysts, is that Argentina is attempting to persuade the court to rule in the country's favour "by saying, 'if you try to attach the bonds, you're going to hold up the whole works.'"
Judge Thomas Griesa of New York's Southern District Court postponed his decision last Tuesday to lift a preliminary freeze granted last week to creditors on the bonds – effectively maintaining the freeze.
NML Capital had originally urged the court to freeze the 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.
"We believe the Court of Appeals will confirm the District Court decision," said Nielsen.
He was at pains to stress that the postponement of the exchange does not mean that it has been delayed, because the terms of the swap grant sufficient scope for such eventualities. "In reality, there is no delay, because the terms of the exchange leave room for settlement to occur after April 1 (if by then is not practicable), until when it becomes practicable to do so." He added: "As per the terms of the exchange, we have not incurred a delay."
Either way, the worry is that, in the wake of NML's action, other creditors, possibly 10% of those who did not participate in last month's restructuring, may also put pressure on the sovereign. "The holdouts include people who bought the bonds with the sole purpose of litigating," says James Barrineau, at Alliance Capital.
Nielsen, however, remains undaunted. "One cannot predict if there are going to be further lawsuits or measures aimed at hindering the restructuring; however, we are very confident that there is no legal basis to alter the process," he said.
Argentina still faces the question of how to deal with the 24% of creditors who did not participate in the deal. Privately, sources close to the government dismiss the idea of reopening the debt exchange – a solution increasingly favoured by many analysts – on the grounds that no bondholders have yet openly expressed interest in such a move. Moreover, such action would be politically unfeasible, and it would require a constitutional amendment.