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Supreme Court Ruling Sparks Argentine Bond Rout

Tyler Durden's picture




 

The years-long court battle over Argentina's sovereign debt default appears to have ended... badly for Argentina (and apparently well for Elliott Management). As WSJ reports, the U.S. Supreme Court on Monday rejected Argentina's appeal (and mutually assured destruction threats that it "could trigger a renewed economic catastrophe with severe consequences for millions of ordinary Argentine citizens") leaving in place a lower-court ruling that said Argentina can't make payments on its restructured debt unless it also pays holdout hedge funds that refused to accept the country's debt-restructuring offers. Argentine USD bonds are down 10 points on the news ahead of President Cristina Fernandez addressing the nation at 9pm local time.

 

Via WSJ,

It all started in a familiar fashion: a sovereign default:

Argentina defaulted on about $100 billion of its debt during its financial crisis. The country in 2005 and 2010 offered holders of the defaulted bonds new heavily discounted debt in exchange. Between the two swaps, investors agreed to exchange about 93% of the defaulted bonds.

But some funds held out.

The holdouts include Aurelius Capital Management and Elliott Management Corp. affiliate NML Capital Ltd. Argentina owes the holdouts in the current case more than $1.3 billion in principal and interest.

And after winning and losing assorted appelate level decisions, took the case to the Supreme court.

The hedge funds had urged the court to reject Argentina's appeal, saying the country had far overstated the financial impact of the case and has the money to pay up. They also said the Argentine government has a history of mistreating creditors and didn't deserve Supreme Court review because it will disobey the U.S. court rulings if it ultimately loses.

Which finally made a decision moments ago.

The U.S. Supreme Court on Monday rejected Argentina's appeal in a high-stakes case stemming from its historic 2001 default, a major blow for the country in its lengthy battle with holdout creditors.

 

The court, without comment, left in place a lower-court ruling that said Argentina can't make payments on its restructured debt unless it also pays holdout hedge funds that refused to accept the country's debt-restructuring offers.

 

The Second Circuit rejected Argentina's "blanket assertion" that a ruling against the country would plunge it into a new economic crisis.

The Supreme Court refused to disturb those rulings, saying in a brief written order that it would not consider Argentina's appeal.

Argentina warned of the consequences.

Argentina had warned the Supreme Court that the lower-court ruling left it facing the possibility of a new, court-ordered default, "which could trigger a renewed economic catastrophe with severe consequences for millions of ordinary Argentine citizens."

 

The country also said the rulings threatened international credit markets and impeded the debt-restructuring process.

And perhaps that is the sabre the nation's President will rattle tonight?

  • ARGENTINE PRESIDENT CRISTINA FERNANDEZ TO SPEAK AT 9PM: CN23

Of course, now we have to see what the consequences of Argentina ignoring this decision are. Worst case, maybe Greece will simply buy whatever bonds Argentina will issue, using cash derived from repoing new Greek bond issuances with the ECB.

 

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Mon, 06/16/2014 - 10:58 | 4861215 ShrNfr
ShrNfr's picture

* AMERICAN PRESIDENT OBAMA TO PLAY GOLF TODAY

Mon, 06/16/2014 - 11:01 | 4861227 john39
john39's picture

its amazing how much shit can hit the fan without causing a shit storm.

Mon, 06/16/2014 - 11:05 | 4861240 SafelyGraze
SafelyGraze's picture

just default already

 

Mon, 06/16/2014 - 11:26 | 4861317 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

just default already

That means the politicians would be admitting a past mistake. Never!

Mon, 06/16/2014 - 11:36 | 4861343 Son of Loki
Son of Loki's picture

Gee, the Argentina Supreme Court held the opposite view.

Mon, 06/16/2014 - 11:51 | 4861419 pods
pods's picture

Next some sort of privatization deal will have to be reached to settle these bonds. 
All by the playbook, same as it ever was.

Confessions of an Economic Hitman told me so.

pods 

Mon, 06/16/2014 - 15:04 | 4862207 dontgoforit
dontgoforit's picture

Sell 'em to da' Fed - they'll buy anything.

Mon, 06/16/2014 - 12:10 | 4861490 DoChenRollingBearing
DoChenRollingBearing's picture

It's all George Bush's fault.

Kirchner told me so herself.

Mon, 06/16/2014 - 13:02 | 4861667 Calmyourself
Calmyourself's picture

Have you not learned, laws are for the little people, not your masters.

Mon, 06/16/2014 - 11:17 | 4861285 Grande Tetons
Grande Tetons's picture

The problem is that the fan/market is unplugged and the blades/fundamentals have no purpose. So, what we have is a metal box/economy with shit/shit all over it. 

Mon, 06/16/2014 - 11:08 | 4861247 DaveyJones
DaveyJones's picture

Shhh, the news could affect his game

Mon, 06/16/2014 - 11:15 | 4861275 Dr. Engali
Dr. Engali's picture

It can get worse?

Mon, 06/16/2014 - 11:37 | 4861349 DaveyJones
DaveyJones's picture

depends on which game we're talking about

Mon, 06/16/2014 - 11:33 | 4861338 Freddie
Freddie's picture

Oopps!  Kyle Bass took a hit here. He thought Argentina would win this case.  Foolish because the hdge funds/banksters own the courts.  His analysis of Argentina may still be sound because the TX fracking boys will be going in.

Mon, 06/16/2014 - 15:05 | 4862215 dontgoforit
dontgoforit's picture

They need a cabal of 34 central banks to 'privately' buy up all their near worthless paper.

Mon, 06/16/2014 - 14:33 | 4862063 JLee2027
JLee2027's picture

Argentina hasn't paid, isn't paying, impact in the long term, zero.

Mon, 06/16/2014 - 11:00 | 4861223 Confundido
Confundido's picture

The fact that Argentina was treated as a special case, tells me that when other sovereigns default in the near future, other hold outs will aslo be treated as a special case. The corollary is therefore: Your gold will not be safe unless you can touch it.

Mon, 06/16/2014 - 11:01 | 4861226 BurningFuld
BurningFuld's picture

Stupid is as stupid does. Who would lend Argentina money? Then even funnier...try to get it back.

Mon, 06/16/2014 - 11:08 | 4861252 kridkrid
kridkrid's picture

Who would lend them money? People who can create money out of nothing and people awash with said money who are looking for place to park it. The same people who buy treasuries knowing full well that this shitstorm will collapse at some point as well. It's all a game of pretend... until it's not... which seems to be inching ever closer. Currency wars lead to trade wars lead to world wars.

Mon, 06/16/2014 - 11:15 | 4861277 DaveyJones
DaveyJones's picture

and the string pullers know this progression

Mon, 06/16/2014 - 11:39 | 4861360 Son of Loki
Son of Loki's picture

kridkrid, Bankers get huge bonuses and commissions when they "create" loans. That's their only goal without a worry if the debt will ever be paid since they will be in a different job or bank by the time the debtor defaults. The money was long ago pocketed by the loan officer without a care. The losses are passed on to shareholders or some other Suckers.

Mon, 06/16/2014 - 16:48 | 4862655 soontobeblocked
soontobeblocked's picture

Q. "Who would lend Argentina money?"

A.  Investors who know that one way or another they will see the principal returned with interest.

Your question was also asked in the early 90's w/ re to MEX.  'Who in their right mind would lend money to MEX - even when the interest rate is well above market rate?'

The answer then was Citibank and the Squid because the US taxpayer bailed out MEX in 1994 courtesy of Robert Rubinsteinbergman (who cohencidentally had immense ties to Citi and GS).  MEX received $50 BILLION (a lot of money in 1994) from US, IMF/US, BIS/US, and a token billion from CAN.

As usual the US taxpayer paid for longer and stronger tentacles for the Squid, and does anyone remember Bob's huge signing bonus for joining Citi (SOONER than was allowed by law)? 

Rubin's answer to the criticism from all quarter's was, "Fuck you.  It's my money."  Er, no, Bob, it's our money.  He needed a piece of lead in his skull then as much much as he needs one now.

Mon, 06/16/2014 - 11:03 | 4861229 Gaius Frakkin' ...
Gaius Frakkin' Baltar's picture

Argentina could default every year and there'd still be enough dumb money willing to lend to them... Why should they pay anything?

Mon, 06/16/2014 - 11:06 | 4861246 fonzannoon
fonzannoon's picture

Is this considered dumb money?

“There’s huge opportunity in these bonds,” said Bass, who manages about $2 billion for Dallas-based Hayman Capital Management LP. “I know you can’t see that today, but today’s the time to be thinking about it.”

http://www.bloomberg.com/news/2014-02-03/argentina-bust-lures-bass-led-i...

Mon, 06/16/2014 - 11:10 | 4861258 Gaius Frakkin' ...
Gaius Frakkin' Baltar's picture

Yes.

Mon, 06/16/2014 - 11:31 | 4861334 Kaiser Sousa
Kaiser Sousa's picture

Hell yes.

Mon, 06/16/2014 - 11:41 | 4861372 Freddie
Freddie's picture

Kyle's most recent video on youtube has him pimping Argie bonds.  He said the Texas boys are going to go in and frack plus "the crazy woman" will be leaving office soon.    He also thought Argentina would win this lawsuit. 

Mon, 06/16/2014 - 12:58 | 4861657 KnuckleDragger-X
KnuckleDragger-X's picture

And pimping is the proper word...

Mon, 06/16/2014 - 11:14 | 4861271 kchrisc
kchrisc's picture

Is it not really that foreigners "print" dollars and use those to buy the Argentinean people by way of their criminal government and Rothschild bank?!

Mon, 06/16/2014 - 13:23 | 4861733 Monty Burns
Monty Burns's picture

Yes.

Mon, 06/16/2014 - 11:17 | 4861281 Shad_ow
Shad_ow's picture

Endless supply, with no personal risk, afterall the taxpaers will foot the bill.

Mon, 06/16/2014 - 11:04 | 4861233 CitizenPete
CitizenPete's picture

FDIC Releases Proposed Rulemaking to Amend Annual Stress Test Rule

FOR IMMEDIATE RELEASE
June 16, 2014
 
Media Contact
Andrew Gray (202) 898-7192
angray@fdic.gov

 

WASHINGTON — The Federal Deposit Insurance Corporation (FDIC) today announced it is seeking comment on a notice of proposed rulemaking amending the FDIC's Annual Stress Test rule. The FDIC's NPR follows similar action by the Federal Reserve Board and the Office of Comptroller of the Currency on June 12.
 
This proposed rule would shift back the timing of the annual stress testing cycle by approximately 90 days, and clarify that institutions covered by the Annual Stress Test rule will not have to calculate their regulatory capital ratios using the Basel III advanced approaches until the stress testing cycle beginning on January 1, 2016.
 
The public comment period closes 60 days from publication in the Federal Register. Publication of the proposal in the Federal Register is expected shortly.

Mon, 06/16/2014 - 11:04 | 4861235 Quinvarius
Quinvarius's picture

Argentina should just place the payments to US debt holders in Argentine bank accounts where the money can be picked up at will, and do what they want.  They have no need of a US supreme court ruling.  And those hedge funds hold that defaulted paper can go pound sand.  This is how the debt market operates.  You make bad decisions and you don't get paid.  You bought worthless defaulted paper.

Mon, 06/16/2014 - 11:04 | 4861237 youngman
youngman's picture

What is this..you have to pay back what you owe...who would of thought that...that is old school econ 101...we dont do that today

Mon, 06/16/2014 - 11:05 | 4861243 Duffy Duck
Duffy Duck's picture

The court has made its decision, now let them enforce it.

Mon, 06/16/2014 - 11:28 | 4861322 thatthingcanfly
thatthingcanfly's picture

Wish we could get Old Hickory back for the 2016 election.

Mon, 06/16/2014 - 11:08 | 4861248 NoWayJose
NoWayJose's picture

Why in the world is the US Supreme Court telling Argentina what is can or cannot do?

Mon, 06/16/2014 - 11:19 | 4861292 machineh
machineh's picture

Valid question. It's because Argentina voluntarily chose (as numerous other foreign sovereigns have done) to issue its bonds under New York law.

Argentina can and does issue bonds subject to local law. They pay interest rates of about 24%, reflecting the regular expropriations of foreigners under local legislation. Unlike Argentine courts, New York courts aren't Peronist cronies.

By the way, where is TNTARG, the Kirchner mouthpiece who used to post here about the Peronist workers paradise? Probably her check bounced.

Mon, 06/16/2014 - 13:25 | 4861740 Monty Burns
Monty Burns's picture

Unlike Argentine courts, New York courts aren't Peronist cronies.

 

Agreed. But they are cronies of the Wall St. banksters.

Mon, 06/16/2014 - 11:27 | 4861319 kellycriterion
kellycriterion's picture

Now of course Jose you know that Argentina took the money it "borrowed" and exchanged it for real stuff. A huge component in that real stuff is human labor.

So why should the Argentina political class be forced to give some of value in exchange for something of value. Jose has no problem working for them for free.

But Jose is probably indignant about this income inequality trend. It's probably the fault of rich guys like Eliot Mgt.

Mon, 06/16/2014 - 11:09 | 4861256 Cognitive Dissonance
Cognitive Dissonance's picture

But....but....but what about the old GM bond holders who got stiff-armed by all parties involved.....including the US 'Justice' system?

Mon, 06/16/2014 - 13:28 | 4861748 Isotope
Isotope's picture

+100

Mon, 06/16/2014 - 13:58 | 4861877 Almost Solvent
Almost Solvent's picture

Chyrsler & GM bondholders folded their "liquidation" hand for the government's free money hand. 

Or

Don't bring a penknife (GM Bondholders) to a bazooka (US Gov) fight.

Or

Look around the poker table, if you can't see the sucker, you're it.

Mon, 06/16/2014 - 11:10 | 4861261 FishHockers
FishHockers's picture

Racist decision I tell you.

Mon, 06/16/2014 - 11:12 | 4861264 MFL8240
MFL8240's picture

Shocked to see the Supreme Court voted in favor of their own country!

Mon, 06/16/2014 - 11:19 | 4861291 insanelysane
insanelysane's picture

It's an election year so the lefties are bringing it a little bit back to center.  The rightie elite would like to move a little back to center too but the minions don't seem to be seeing it that way.

Mon, 06/16/2014 - 11:15 | 4861274 Uncle Remus
Uncle Remus's picture

Cristina Fernandez, in couched diplo-speak: "Fuck the US. Care for a sopaipilla?"

Mon, 06/16/2014 - 11:17 | 4861282 insanelysane
insanelysane's picture

If you look at the history of this, everyone was supposed to restructure because we're all equal citizens of the world except for the IMF, whose employees pay no taxes to any country in the world.  The IMF was paid back in full.

Mon, 06/16/2014 - 11:20 | 4861297 highly debtful
highly debtful's picture

Pity. It's a beautiful country, at least up north - I've never been to the south. We visited the country back in 2008 and I very much liked the people over there. But my brother in law, who lives in Paraguay since 1989, told me there and then that the country was doomed because Cristina was a complete crackpot who wouldn't recognize a sound economic policy if you'd serve it to her with the finest Beluga caviar and a bottle of Torrontés.

Turns out he was right 6 years ago. Unfortunately, because the country has a lot going for it, IMO. 

Mon, 06/16/2014 - 12:05 | 4861475 machineh
machineh's picture

Argentina's next presidential election is in Oct. 2015, and the widow K. (a great pal of Hugo Chavez and the Castro brothers) can't run.

Unfortunately, nearly all the prospective candidates are Peronists (just as all of our U.S. candidates are Depublicrats).

So it will be a miracle if anything ever changes, in a country addicted to statism and dirigisme.

Surely if we just add a few more regulations, things will get better! /sarc

Mon, 06/16/2014 - 12:11 | 4861495 pashley1411
pashley1411's picture

I was going to write this same post.   Any real money to keep the kleptocracy afloat is a loss, and then a punch-in-the-face.

Let Argentina do the Cuba (and Venezula) option; a handful of elites swiling martini's, while the rest of the country goes post-apocalyptic.

Mon, 06/16/2014 - 11:21 | 4861299 border dog
border dog's picture

Each day becomes more crazy!....

Mon, 06/16/2014 - 11:22 | 4861305 insanelysane
insanelysane's picture

Hey Argentina,

It's a big fucking club but you ain't in it.

- US, EU

Mon, 06/16/2014 - 11:24 | 4861306 Quinvarius
Quinvarius's picture

The more I think about this, the more I realize it is just another reason to get the Hell out of the US financial system.  The best the Supreme court can do is cause it to become illegal to accept payment on Argentine bonds for US citizens.  If the Supreme Court can tell a US citizen that they cannot collect interest on an Argentine bond, they can do it to any foreign bond.  This is a horrible ruling that sets a horrible precedent.  Why would anyone take part in a system where they can be denied return on their risk just because some shitbags in a hedgefund like it that way?  I mean WTF? What happens when odumbo decides that taking paymenst on Russian, European, or Chinese debt is not allowed for US citizens because...well..you know...Corzine apparently didn't get paid or something?

Mon, 06/16/2014 - 11:36 | 4861348 insanelysane
insanelysane's picture

Hey, you leave Corzine out of this!  Yesterday was Father's Day and he is the best dad ever.  He bought us a life of luxury with other peoples' money when he was in the government and out of it.

Signed,

Corzine's spoiled kids

Mon, 06/16/2014 - 12:02 | 4861462 Quinvarius
Quinvarius's picture

Didn't one of his kids just off himself?

Mon, 06/16/2014 - 12:27 | 4861559 Sean7k
Sean7k's picture

If I understand correctly, the money used to pay all bonds can now be seized to satisfy the Hedge fund holder as it enters the system. Probably proportional according to holdings. So, SCOTUS is not saying quite the same thing. However, I think your original idea of placing the payments in argentinian accounts is genius.

Mon, 06/16/2014 - 11:33 | 4861337 Kaiser Sousa
Kaiser Sousa's picture

me and my Silver are cracking up watching all this debt based currency dumbfuckery...

its so FUNNY......

Mon, 06/16/2014 - 11:42 | 4861373 CrashisOptimistic
CrashisOptimistic's picture

psssst

 

Any swaps on these?

Mon, 06/16/2014 - 11:58 | 4861446 Uncle Remus
Uncle Remus's picture

Sooo, any ethnic Russians in Argentina...

Mon, 06/16/2014 - 11:58 | 4861447 disabledvet
disabledvet's picture

Here comes the Battleship New Jersey phuckers.

Mon, 06/16/2014 - 12:28 | 4861560 junction
junction's picture

Some hedge fund lawyers know the law, others know the judge (Chief Justice Roberts in this case).

Mon, 06/16/2014 - 13:54 | 4861875 Jano
Jano's picture

What the hell Argentina is, to believe, that they do not need to pay a debt? Why did they generate debt?
No, am not a hedge fund manager, but just making a debt and to live on credit, yes, maybe 5 years, but not perpetually, dear Argentina.
By the way 70% of Argentinians have Italian ancestors. They should get an European bailout, like Greece.

Mon, 06/16/2014 - 15:51 | 4862451 Sean7k
Sean7k's picture

http://en.wikipedia.org/wiki/Italian_Argentine

Perhaps as high as 60%, but it was noted as 46% in 1996. Brazil has more Italians actually, at about 25 million.

Mon, 06/16/2014 - 14:56 | 4862166 SmittyinLA
SmittyinLA's picture

This ruling wasn't for Argentina but CA and Illionois

Mon, 06/16/2014 - 14:58 | 4862173 SmittyinLA
SmittyinLA's picture

Argentina should file bankruptcy in US courts under the municipal bankruptcy law, dump like Detroit.

Mon, 06/16/2014 - 17:50 | 4862895 mrdenis
mrdenis's picture

If you like your bonds .......................

Wed, 06/18/2014 - 11:16 | 4869344 Salah
Salah's picture

VACA MUERTA FORMATION = 600+ BILLION BARRELS OF OIL  AND 1200 TRILLION CU. FT. OF GAS

Do NOT follow this link or you will be banned from the site!