Argentina Bonds Tumble Further After 'Swap' Plans Unveiled, Then Ruled In Violation

Tyler Durden's picture


After 2 days of weakness following the SCOTUS decision against them, Argentina unveiled a plan to restructure their debt - swapping existing foreign law debt to local law (more manipulatable and less legally enforceable) bonds, though Citi warns "implementing [the swap] may be technically challenging.". This 'voluntary swap' action is not a clear 'default event' but CDS spreads surging to over 3000bps and longer-dated bond prices tumbling once again suggest the market believes the path is clear as holdouts will once again hold out. As we explained here, there are five main scenarios and it appears, given these actions - that Argentina is playing hardball and will restart negotiations over the debt exchange. As Jefferies warns, "there's a high chance of default," but Argentina's economy minister Kicillof explained "everyone stay calm, the reconstruction of Argentina is not jeopardized." This plan was then ordered in violation of the anti-evasion policy SCOTUS set in place.


Bonds are tumbling...


And CDS soaring...


As Bloomberg reports,

Argentina will seek to move its overseas bonds into local jurisdiction to skirt a U.S. court ruling forcing it to pay holders of defaulted debt in full.


The swap will ensure holders of restructured bonds keep getting paid while allowing Argentina to avoid complying with the U.S. ruling, Economy Minister Axel Kicillof told reporters yesterday. Cabinet officials will meet with lawmakers today to discuss how to shift investors into local-law bonds while the government will also send lawyers to meet with U.S. District Judge Thomas Griesa in New York to discuss the ruling, he said.


If the government doesn’t modify its current strategy, Argentina is on the path to firstly be in contempt of New York’s courts and then to enter into default on all of its debt,” Luis Secco, the director of Perspectiv@s Economicas in Buenos Aires, wrote in a report.


Of the possible scenarios, this was the most adverse,” Roca said in a telephone interview from New York. “Until the moment that they miss the June 30 payment and the 30 days of grace has passed, I’m reluctant to say they’ll default. But they’re certainly heading that way.”

Tick tock...

Simply put, the Swap deal is a bargaining chip as Argentina hopes to get a large enough group of bondholders so as to pass the "voluntary" swap deal. The question is - how many of the swappable bonds are CAC-able (i.e. can be levered by the group)? We suspect the holdouts are not - and will remain holdouts leaving the issue of the June 30 payment still crucial (and that is why bonds and cds are tumbling).


Credit Suisse believes Argentina's strategy will violate SCOTUS anti-evasion orders...

Those orders say that “the Republic shall not – either directly or through any [representative acting on its behalf] – take any action to attempt to evade the purposes and directives of the Amended February 23 Orders, attempt to render those Orders ineffective, or attempt to diminish the Court’s ability to supervise compliance with the [Orders], including without limitation, altering or amending the processes or specific transfer mechanisms by which it makes payments on the Exchange Bonds, without prior approval of the Court.”


Kicillof also said he has instructed Argentina’s lawyers to speak with Judge Griesa. The apparent purpose of this is to explain to the judge that complying with his orders would force Argentina to default. In this context, they could ask Judge Griesa for approval to carry out the foreign for local law exchange. Kicillof did not mention anything about communicating to Griesa any intention to negotiate with the holdouts. We would be surprised if Griesa were sympathetic to Argentina at this stage.


The pari passu injunction and anti-evasion orders could complicate execution of this swap. If not amended, they could make it difficult for U.S.-based entities to participate as investors or intermediaries. They could also jeopardize the access to additional foreign financing sources that Argentina has worked to re-establish over the past year. Being in contempt of court would probably inhibit Argentina’s return to international capital markets.


The strategy announced yesterday points to a selective default. Standard and Poor’s said yesterday that a swap into local law would be considered a distressed debt exchange based on its criteria, which would lead them to downgrade Argentina to SD (selective default). A selective default on foreign law bonds would not be official until the end of the 30-day grace period. The Discounts would be in default if Argentina does not pay by 30 July, while holders of Pars and Global 17s could accelerate the maturity of their holdings (i.e., cross-default). CDS contracts would also be triggered at the end of the grace period.

And just as we warned...


Of course, the big question is simply how enforceable is this? Just how worried is Cristina?

The market's reaction to this is strength in the 'defaulted' bonds as the likelihood being paid out pari pasu increases...


It seems just like in Greece, it pays to wait...

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Wed, 06/18/2014 - 15:58 | 4870823 NotAMathWhiz
NotAMathWhiz's picture

Not a default event.  The CDS folks gotta be tired of hearing that by now.

Wed, 06/18/2014 - 16:05 | 4870885 JLee2027
JLee2027's picture

I still find it incredible that SCOTUS believes they have authority to rule over a foreign sovereign nation, no matter the contract excuse. Remember, they actually set a deadline for Argentina to repay. A deadline, for people that are not citizens of the United States. No wonder America is becoming hated. 

Wed, 06/18/2014 - 16:24 | 4870967 Matt
Matt's picture

If they did not want to be subject to American law, they should not have borrowed money under American law.

Wed, 06/18/2014 - 16:32 | 4871003 JLee2027
JLee2027's picture

It's null and void because American law cannot apply to a foreign country. Typically these kinds of things go to international courts.

Wed, 06/18/2014 - 16:42 | 4871038 machineh
machineh's picture

You don't get it. 

Argentina issued a bond indenture, under their own volition, specifically designating New York law for adjudication. That became an enforceable contract.

Many developing countries raise funds with bond indentures stipulating either New York or English law. It's standard procedure, and it's enforceable.

Wed, 06/18/2014 - 16:49 | 4871059 JLee2027
JLee2027's picture

Predatory lending. 

Many developing countries raise funds with bond indentures stipulating either New York or English law. It's standard procedure, and it's enforceable.

No, it's not. Argentina already told SCOTUS to pound sand. 

Thu, 06/19/2014 - 07:16 | 4872809 0z
0z's picture

Too many Property titles.
Too few Property.

Wed, 06/18/2014 - 18:18 | 4871306 7.62x54r
7.62x54r's picture

So fucking what. Argentina is still a soveriegn nation.

Is Obama going to declare war on them? Stupid. Nations break treaties all the time. Argentinia will default, then join the BRICS, who will not make unsecured loans to them. Probably the best medicine for the Marxist retards running Argentina.

I have no simpathy for someone who loans money to a nation that has have a tendency to go socialist. People should learn from this. The US has the same tendency, and will eventually default as well.

"Pot to kettle, you are black. Repeat, you are black. Pot out."

Wed, 06/18/2014 - 16:59 | 4871089 twh99
twh99's picture

You are wrong. 

When these bonds were issued, they were issued under US LAW.  If Argentina didn't want them under US jurisdiction then they should have issued them under their own law.  However no one in their right mind would have bought them then.

And the existing US bonds can be collected on quite easily, thru confiscation of Argentinian assets in the US (ie bank accounts, property, etc.).  The hedge funds could threaten to take possession of their embassy in Washington or seize a few bank accounts.  Either way sit back with some popcorn and watch the fun.

Wed, 06/18/2014 - 17:19 | 4871148 Sean7k
Sean7k's picture

Grisa already ruled the national airline is exempt from seizure. You take the argentinian embassy, they take ours. Not a smart move. The biggest problem is global relations. You start seizing assets and what happens? Ask the Russians. Everyone moves their shit out of America- permanently. 

We seem to be forgeting that the US, via the IMF, has been bankrupting second and third world countries for decades. Do you think those countries have forgotten? 

Americans may be ignorant, but that doesn't mean the rest of the world is. 

Wed, 06/18/2014 - 18:29 | 4871318 7.62x54r
7.62x54r's picture

The very notion that the SCOTUS has any defacto jurisdition over a soveriegn state other than the US is hilarious.

Good luck with that concept.

Wed, 06/18/2014 - 16:39 | 4871029 machineh
machineh's picture

Quite right. 

Argentina can and does borrow under local law, but they pay rates of 24% and up, since foreign investors (for good reason) have no faith in the Argentine legal system.

Wed, 06/18/2014 - 16:52 | 4871068 JLee2027
JLee2027's picture

Exactly my point. Predatory lending. Sign this or else.

Wed, 06/18/2014 - 17:01 | 4871094 twh99
twh99's picture

No its called capitalism.  If the Argentinians weren't such deadbeats and paid their bills on time over the years, they would have a much better credit rating and lower interest rates.

Wed, 06/18/2014 - 17:06 | 4871114 WmMcK
WmMcK's picture

No, it's called usuary.  The lender took a risk; mandated/complelled payback at 100% regardless will eventually lead to revolution.

Wed, 06/18/2014 - 16:27 | 4870982 Gringo Viejo
Gringo Viejo's picture

"Anti-Evasion"...words to live by, no doubt.

Wed, 06/18/2014 - 17:20 | 4871152 pcrs
pcrs's picture

So if you borrow money to a foreigner, you do not have any legal right to be paid back?

The government had no issue in taking the money it and not in spending it and now it is payback time and their tax slaves/citizens turn up empty, they want to default.

Wed, 06/18/2014 - 18:27 | 4871337 7.62x54r
7.62x54r's picture

If you lend money to a foreigner, and don't secure the loan, you can only get satisfaction for any resulting torts from local courts for assets inside your country, or from the foreigner's country's courts.

Trying to send US Marshals to Argentina to get satisfaction of that tort will result in the US Marshals coming back in body bags. This decision will only effect Argentinian assets in the US that are not protected by treaty.

The only real leverage the SCOTUS has is its ability to screw with funds moving through the US.

Wed, 06/18/2014 - 15:53 | 4870824 DoChenRollingBearing
DoChenRollingBearing's picture

One of my Bitcoin sellers tells me that BTC is getting very popular in Argentina.

Wed, 06/18/2014 - 15:55 | 4870833 buzzsaw99
buzzsaw99's picture

sucks to be them

Wed, 06/18/2014 - 15:56 | 4870842 pods
pods's picture

Nobody in power in the US follows the rules, why should Argentina?


Wed, 06/18/2014 - 16:04 | 4870873 DeadFred
DeadFred's picture

We have more guns?

Wed, 06/18/2014 - 18:30 | 4871355 7.62x54r
7.62x54r's picture

Obama will have the embassy there issue a Stern Note.

Wed, 06/18/2014 - 16:32 | 4871000 B2u
B2u's picture

Obama can issue an executive order to violate the SCOTUS ruling.

Wed, 06/18/2014 - 16:00 | 4870855 hugovanderbubble
hugovanderbubble's picture


Argentina is Junk Bond = Period. Haircuts coming

Wed, 06/18/2014 - 16:16 | 4870934 Poundsand
Poundsand's picture

"They could also jeopardize the access to additional foreign financing sources that Argentina has worked to re-establish over the past year. Being in contempt of court would probably inhibit Argentina’s return to international capital markets."


Seriously?  This is what it has come too?  They are right now working on defaulting, or forcing at 30% haircut and the worry is that it could jeopardize Argentina's access to international capital?  Wow. 


Wed, 06/18/2014 - 17:06 | 4871111 twh99
twh99's picture

The markets will yawn when Argentina defaults.

Wed, 06/18/2014 - 16:01 | 4870856 kowalli
kowalli's picture

fack us

Wed, 06/18/2014 - 16:02 | 4870860 lasvegaspersona
lasvegaspersona's picture

I'd put my money in Australs...they worked so well back in the late 80s.

Still have some in fact...wonder what I should buy.

seriously, I have  fond memories of getting robbed (in various forms) 3 times one afternoon in BA. A lovely city to look at and in which to eat befe de loma but seriously dangerous since at least 1988.

Wed, 06/18/2014 - 16:09 | 4870893 disabledvet
disabledvet's picture

Somebody was bidding that debt up prior to SCOTUS...then got annihilated.

Argentina is a very expensive place to live as well. A lot of English investors "back in the day."

Wed, 06/18/2014 - 16:12 | 4870913 beavertails
beavertails's picture

The solution is beyond simple here argentina, introduce 110% taxes on all interest bearing bonds at the time they are paid and 100% of it withholding and watch those hedge funds run for the hills.  You are fucked anyways so might as well go NIRATRP (Negative Interest Rate After Tax Policy).

Wed, 06/18/2014 - 16:26 | 4870976 Matt
Matt's picture

The bonds are not issued under Argentine law, therefore Argentine law does not apply. Likely, Argentine taxes do not apply either unless you are holding them as an Argentine company or person.

Wed, 06/18/2014 - 18:33 | 4871368 7.62x54r
7.62x54r's picture

Good luck enforcing that in Argentina.

Wed, 06/18/2014 - 18:33 | 4871364 7.62x54r
7.62x54r's picture

Typical when governments go full retard. Never go full retard.

Anyone with moveable assets will move them. Yes, Bitcoin will get really popular.

Wed, 06/18/2014 - 16:14 | 4870923 Fix-ItSilly
Fix-ItSilly's picture

Selective default occured with Greece.  Twist the right arms.  Caress the caressable. Buy what is buyable.  But please...  stop crying, "Greece" is the beacon for accomplishment.

Wed, 06/18/2014 - 17:07 | 4871099 twh99
twh99's picture

The whole EU market and currency was at risk with Greece.  Not so with Argentina.

In fact no one gives a shit about them.  They default like other people buy new cars.

Wed, 06/18/2014 - 16:27 | 4870978 Oldrepublic
Oldrepublic's picture

Good short  introduction on the bond problem by Bill Black, Univ. of Missouri


Wed, 06/18/2014 - 16:30 | 4870993 xamax
xamax's picture

Dont cry for BONDS Argentina

Wed, 06/18/2014 - 16:36 | 4871017 Emergency Ward
Emergency Ward's picture

Para español marque uno.  Para inglés marque dos.  Para bonos, permanezca en la linea -- para siempre.

Wed, 06/18/2014 - 16:40 | 4871035 orangegeek
orangegeek's picture

Yep - that will solve my life's problems - buy some argentinian debt.


Holy crap, buyers are desparate.

Wed, 06/18/2014 - 17:55 | 4871047 pakled
pakled's picture

Solution: The whole world defaults at once. Ready... 1, 2, 3, GO!



(Everyone who went on 2 gets extra credit)

Wed, 06/18/2014 - 17:00 | 4871093 Salah
Salah's picture



Wed, 06/18/2014 - 17:09 | 4871122 Sean7k
Sean7k's picture

Argentina should just default on all their debt. What can it hurt. No one really gets that hurt. The bond markets return after a while, especially if you promise really, really, really hard to pay THIS time. With all the liquidity sloshing around in the world and the permanent near zero interest rates, people will take a risk at a good interest rate. 

Look at Spain and Portugal, they are throwing good(?) money after bad and at ridiculously low rates. Same with Cyprus, Ireland and Greece. 

They have plenty of beef(export) and grains (corn, soy) as well. The wine is good. Fuck SCOTUS, it's not like they aren't fucking us. They're all dregs of the species anyway.

Wed, 06/18/2014 - 17:37 | 4871183 Tod E. Tosspot
Tod E. Tosspot's picture

Considering Ecuador had no problem selling $2B this week, it's kind of hard to argue with the strategy.

Wed, 06/18/2014 - 17:22 | 4871155 pcrs
pcrs's picture

Argentina would have looked a lot better if their douchebags in charge had not been able to borrow so much money from abroad.

Wed, 06/18/2014 - 18:34 | 4871375 7.62x54r
7.62x54r's picture

Whos fault is that?

If you lend money to a bum, don't be surprised when his pockets are empty when the note is due.

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