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.