Argentina Stuns Bondholders With Scorched-Earth "Cramdown" Plan

Tyler Durden's picture

With the impasse over the latest Argentina default going nowhere fast, late last night president Kirchner stunned its creditors when she announced what amounts to a cramdown plan for holdouts, in which all bonds would be stripped of their existing indentures and converted to local law bonds. Or, as some would call it, a "scorched earth" transaction that burns all bridges, and goodwill, with the international creditor community and likely leaves Argentina unable to access global capital markets for the foreseeable future.

As part of its transaction Argentina would bypass the order issued by Judge Griesa halting payments to all creditors, not just the holdouts, and resume normalcy for the 90%+ of restructured bondholders while leaving Elliott, Aurelius and the like with little to no recourse aside from holding on to claims which would be two swaps behind, and with essentially no legal standing as it would completely bypass the Bank of New York (whom it would remove as trustee) custodian payment process and allow Argentina to make payments directly to those creditors it sees fit.

In essence, what Argentina plans to do is the opposite of what Greece did in 2012 when it defaulted on existing bonds, and swaped over into English-law bonds as an incentive for existing creditors, in effect promising it would never do it again. What Argentina has just shown is how easy it would be to "cramdown" bondholders who thought their "strong" covenants were safe when in reality all it takes is a government order to strip any and all of their indenture protection. Needless to say this has a very negative implication for Argentina's future ability to raise capital in the international arena for the near, and longer-term (at least until the ZIRP yield junkies come crawling back hoping to collect 10% if only for one year; the year after that will be some other Portfolio Manager's problem).

According to Bloomberg, the government will submit a bill to Congress that lets overseas debt holders swap into new bonds governed by domestic law with the same terms, President Cristina Fernandez de Kirchner said in a nationwide address yesterday. Payments will be made into accounts at the central bank instead of through Bank of New York Mellon Corp., the current trustee.

Holders of Argentina’s $30 billion of overseas bonds have been in limbo since U.S. District Court Judge Thomas Griesa blocked the nation’s attempt to pay $539 million in interest due by July 30. His ruling was meant to compel Argentina to resolve unpaid debts from its 2001 default. While most creditors agreed to provide debt relief, hedge funds led by billionaire Paul Singer’s Elliott Management Corp. refused and successfully sued for full repayment in U.S. court.


“The bigger picture hasn’t changed at all,” Will Nef, who helps manage $3.2 billion of emerging-market debt at Union Bancaire Privee in Zurich, said by phone today. “Argentina is still locked out of international credit markets because the issue with the holdouts remains unresolved.”

It may well be locked out, but if this plan goes through, it will remain in the good graces of its restructured bondholders, while taking the last bit of leverage the holdouts have. However, what is worse are the negative implications for international bondholder contractual terms.

Bloomberg has more on the details of the actual proposed swap:

Argentina plans to create a separate account for the holdout creditors such as Elliott, who own 7.6 percent of debt from 2001 and didn’t accept the government’s previous debt swaps. Payments for holdouts would be deposited under the same terms as the rest of its restructured debt, regardless of whether they decide to accept the swap. 


Creditors opting to keep their notes will also get payments locally under the plan, Fernandez said yesterday. Stephen Spruiell, a spokesman for New York-based Elliott, didn’t immediately reply to an e-mail seeking comment.


Daniel Pollack, a court-appointed mediator for the talks between Argentina and the holdouts, didn’t immediately return an e-mail seeking comment on the government’s proposal.

Curiously, alongside the announcement, with the situation suddenly quite "fluid", ISDA pushed back the date for the auction to settle Argentina’s credit-default swaps to after Sept. 2 from Aug. 21, according to its website. Argentina’s failure to pay interest on its bonds triggered a credit event and settlement of $1 billion of the default swaps.

Amusingly, as Credit Suisse's Casey Reckman summarizes, and who was quite negative on the announcement as per his overnight note, the Argentina plan would likely result in what is a contempt of court to Judge Griesa. From Bloomberg:

  • Foreign-law exchange bonds could be dropped from main Emerging Markets bond indexes if operation is completed, which could lead some investors to sell their holdings, Credit Suisse economist Casey Reckman writes in report.
  • Strategy could indicate reduced govt willingness to settle with holdout creditors once the Rights Upon Future Offers (RUFO) clause expires at year end
  • Sees increased risk that govt will leave the holdout issue for the subsequent administration to resolve
  • Debt swap would likely violate U.S. Judge Thomas Griesa’s orders against evading his pari passu ruling, which could result in Argentina being held in contempt of court
  • U.S. based financial intermediaries and investors could be wary of risking contempt themselves if they were to participate
  • While contempt of court may have few practical implications, it could further limit the already reduced potential for foreign financing flows until situation is resolved
  • Renewed motivation for settlement would probably have to be driven by economic circumstances, namely a significant decline in international reserves that threatens govt’s ability to continue servicing its USD-denominated obligations

In other words, in order to preserve some optionality, what is next on Elliott's agenda, would be nothing less than crushing the Argentina's economy, depleting the central bank's reserves, which at last check were just under $30 billion, or a little more than Elliott's AUM, and send the CFK administration packing. 

Can he do it? We eagerly await to find out. In the meantime, any Argentina "assets" abroad, be they naval or otherwise, are once again fair rehypothecation game.

Finally, keep an eye on the Argentina bond market where this development will likely play out on accelerated basis, now that Argentina has confirmed it will play "scorched earth" hardball with creditors.

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I am more equal than others's picture



War to start in days, maybe weeks.

espirit's picture

CalvinBall Rules!

(no rules)

GetZeeGold's picture



Clearly they need to turn to socialism.....or of those.

max2205's picture

She owns the bank....fuck the stupid institution s that loaned her the money.

SMG's picture

Will this trigger the dervatives already?

old naughty's picture

Gutsy...saying f'ck y'all.

What's with all these women in power ?

saveandsound's picture

I would not place any bets on a "scorched earth"-situation. Bond holders might accept this offer before losing all. Might lead to increased rates for Argentina though.

Most interesting to see how they try to strip power away from Wallstreet. Next time they offer bonds denominated in CHF, CNY or even RUB ... ;-) Anyway, US war ships have already been put to sea, I guess.

philipat's picture

But when the US defaults and/or Trillions of Derivatives default, it will be "Unfortunate but unavoidable"? By then, your paper will be worthless and there is a very good chance that your Bank Accounts will have been confiscated. ALL Governments are bankrupt. Act now.

Heavy's picture

I was under the impression that these are war debts incurred by a US backed military dictator?

whotookmyalias's picture

Anything that backs away from Wall Street and all the greedy shysters is probably good long term.  Might suck in the short term, but hey at least she's not turning to the same ones who got them into this mess for the solution.

saveandsound's picture

Most funny would be if Argentina changed their US-law USD-bonds into local-law USD-bonds and yields went down.

Russia and China could have a demand for those. *lomao*

Russia and China are reducing their Ts-holdings, so what are they gonna do with the liqudity?

Just saysing...

Isotope's picture

Kyle Bass was apparently betting on a bullish outlook for Argentina. I wonder what this does to his investment strategy there?

JLee2027's picture

As the old saying goes: if you owe money to a man, he owns you. But if you owe a lot of money to a man, you own him and the tail wags the dog, which is what we have here. 

fuu's picture

Don't give in to the bankster plan Argentina!

DanDaley's picture

Anyway, US war ships have already been put to sea, I guess.


No, she will probably just take a long walk off a high roof.

Majestic12's picture

I think Christina's hot!  Brains and a latina boom, boom....but, Vlad is cock-blocking me...

DanDaley's picture

It's all plastic surgery and botox -that is about Argentina's #1 product.

Majestic12's picture

"What's with all these women in power ?"

if it wasn't for marriage and primo geniture being an integral part of Capitalism, the half of the .01% would be broke-ass con men, instead of billionaires...or rich con men....


TruthHunter's picture

"What's with all these women in power ?"


They don't have as much as men, but where it counts(between earlobes)

they've got more than enough.

Testosterone poisoning is a major problem. Hens run, Rooster will puncture your kids.

Cows are no big deal, but hope for a fence between you and the bull.

Who rides stallions? Ewes run, Rams run you down. Billy goats? The original porn stars!

Kirk2NCC1701's picture

Argentina has its share of Oligarchs too, like most Latin countries.  The difference between them...

The difference ... is whether these Oligarchs are enlightened or not.  The ones who are, will think more in National terms and work with others of their kind to build a better nation.  The ones who aren't, will seek only to fill their own pockets (every scumbag for himself mentality).

Which camp they fall into has everything to do with how much they were held as infants, and how they were raised.  If their parents were 'lizards' or parasites, they will be too.  IOW, it also depends on the Worldview of the household they grew up in.  If their allegiance is to Argentina and they see themselves as Latins, fine.  But if they see themselves as "something apart' (e.g. Global Zionists), then they will be only Extractors, not Builders.

Buck Johnson's picture

Maybe it dawns on women faster that hey, where a country and I'm the leader we decided who will get what and what amount.  And if we default, so what better luck next time.  I mean the only thing that is worse for her is thta the people will see that she stood up for them.  A win win for her.

ThroxxOfVron's picture

This is cramdown event phase one.  The Banks are probably gonna renig on paying the cds just like Argentina reniged on paying the bonds.  No event will be declared and no money paid.  

Facts will be ignored if the facts would cost the TBTF money out of the till.  


cro_maat's picture

Yes, the world is now waking up to the fact that ISDA is integral to the ponzi and they will only declare events when it suits TPTB.

rbg81's picture

Fuk the bankers?  Okay, short term problem solved.   But they won't like what happens next.  

Personally, I welcome this move.  Would luv to travel down to Argentina and live like a king for pennies on the dollar.

sodbuster's picture

> and likely leaves Argentina unable to access global capital markets for the foreseeable future.<

I call bullshit- after watching the markets we have, they could float a bond issue TOMORROW, and it would be sold out!

garypaul's picture

Yeah, or pretty close!


MollyHacker's picture

...and where are you from...likely to get your head handed to you.

Antifaschistische's picture


Argentina signs oil deal with Russia in RMB.   Increases beef exports to China.

estebanDido's picture

The money was lent to argentianian dictator (the one who started the Faulklan Malvinas war). He should pay, bring a gun. 

nixy's picture

<<She owns the bank....fuck the stupid institution s that loaned her the money.>>

Surprise anyone here still thinks 'she' was lent anything at all.....

They created it from fuck all type thin air. They could argue they don't have to pay anything, as no person suffered any loss.

disabledvet's picture

Well...Argentina has definitely suffered a loss. US Banks have little in the way of enforcing their rulings. Don't think the US Marshal's are going to make a difference with Buenos Aires.

There is the "slight" problem that Wall Street has trillions in capital availability right be lent out at ridiculously low yields I might add. "Size matters" when it comes to extending capital...especially when you're talking the needs of a State. I would have advised to cut the check and get moving on oil, natural gas, beef, soybeans, etc before the price falls further.

The Russia to Argentina to China deal is an interesting one...but the amounts of actual product that would be involved are pretty much de minimus relative to say Australia.

The problem still seems like one of final demand not one of resource scarcity.

chubbar's picture

Jerome Daly argued the same case in MN. The judge found that this was a valid argument. Of course he died 6 months later from poisoning and the ruling was overturned on appeal but for a few short months it looked like money created by a ledger entry on a bank's balance sheet and then lent out was not going to have to be repaid. An interesting read.

A Nanny Moose's picture

Ultimately, Demockratyrrany is all about enslaving future generations, for the comfort of current power structures (read: Geriatrics)

Salah's picture

Don't need gold; they got Vaca Muerta = 660+billion barrels of oil and 1500+ trillion ft. natgas

DOT's picture

The Dead Cow is taking $Millions to develop-paid for-financed by whom? Argentina has already gone down the "we"ll just Nationalize It" road.Didn't work too well.

XuscitizenSweden's picture

Yepp, you're right.

Island's folk stood up to the robber barons in London/ NYC.

This is why small soverigen nations are important! The NWO is scared shitless of indepedent thought. I'm old enough to remember the Non Allied Movement.

Little is Big. Even the 'Chaos theory' proves that.

XuscitizenSweden's picture

Yepp, you're right.

Island's folk stood up to the robber barons in London/ NYC.

This is why small soverigen nations are important! The NWO is scared shitless of indepedent thought. I'm old enough to remember the Non Allied Movement.

Little is Big. Even the 'Chaos theory' proves that.

luckylongshot's picture

What Kirchner missed was that she could have just declared all the bonds null and void using the legal principle of consideration. Since these bonds were created out of thin air by banksters, there is no consideration and so Argentina actually has no legal obligation to pay them back.

luckylongshot's picture

What Kirchner missed was that she could have just declared all the bonds null and void using the legal principle of consideration. Since these bonds were created out of thin air by banksters, there is no consideration and so Argentina actually has no legal obligation to pay them back.

Gromit's picture

They want to pay them back.

Their long term strategy may be to access capital markets unrelated to Wall Street.

nixy's picture

<<What Kirchner missed was that she could have just declared all the bonds null and void using the legal principle of consideration. Since these bonds were created out of thin air by banksters, there is no consideration and so Argentina actually has no legal obligation to pay them back.>>


at least someone gets it.

chubbar's picture

See my post above but basically this is the U.S. case that also agreed with that point.

(of course the judge was killed because of it and the ruling overturned on appeal)

Radical Marijuana's picture

Yes, that is the most relevant and interesting point, luckylongshot.

Money is measurement backed by murder, which has developed into the globalized form of enforced frauds, where governments enforce the frauds of private banks being able to make more "money" out of nothing as debts. Basically, the powers of governments were due to the history of warfare, which created triumphant military organizations with the power to tax, as well as to enforce legal tender laws. Those powers were gradually captured by the best organized gangsters, the banksters, who were able to systematically apply the method of organized crime to capture more and more control over the political processes, as well as other social institutions, such as the mass media.

The basic systems were that money made out of nothing as debts were the ways that fraud was legalized, and enforced by governments, so that natural resources could be systematically robbed through the runaway ability of credit based on really nothing but the power of governments to enforce the fiat money frauds being able to back that up. Thereby, a globalized civilization has become criminally insane systems of legalized lies, backed by legalized violence, spinning out of control. Countries like Argentina are merely leading the ways towards the psychotic breakdown of those established systems, where the ability to back up frauds with force works less and less well over time.

It remains to be seen how the CIA, etc., (which was originally made and still controlled by the banksters) could ever overthrow the Argentinian government, in order to reinstall political puppets which would cooperate with the international bankers' systems, by enforcing more frauds against the Argentinian people. The obvious problems are that system of debt slavery generates numbers which become debt insanities, which are mathematically impossible to resolve anymore.

Argentina has ALREADY been sucked into the black hole of enforced frauds, which is simultaneously sucking everyone else into that black hole, which is primarily due to civilization actually being energy systems based on the principles and methods of organized crime, operating in ways that the vast majority of people did not understand, and were conditioned to not want to understand.

Americans appear to be headed to be flushed down the same toilet, due to their own system of bankster driven debt slavery generating numbers which have become debt insanity. The ability of private banks to legally counterfeit the public money supply, while governments forced everyone to accept that, has driven the entire globalized civilization stark raving mad. In that context, there are no good reasons to believe Argentina will be able to pull itself out of the black hole of debt slavery becoming debt insanity, because the international bankers will be doing everything they can to continue to increase the gravity of that situation.

Basically, this whole article was written from the biggest bullies' bullshit point of view. The bond holder tend to be the pyramidion people, dominating the long established systems of sophisticated social slavery. Their monetary systems were primarily based on triumphant organized crime, enabling private banks to make money out of nothing, as debts, when they extended credit to others, such as to Argentina.

The basic insanity of the social situation is due to the basic ways that the facts about human life are deliberately denied and ignored as much as possible by the dominating social systems. Human realities were always organized lies, operating robberies. However, those who were the best at doing that were able to legalize their lies, and back those up with legalized violence. Therefore, Argentina is comes to terms with the tragic trajectory that everyone else all over the world will also have to come to terms with.

I expect the established systems to have to go through more severe social storms, and psychotic breakdowns, because more radical truths to face the FACT that those creditors' banks provided nothing but money made out of nothing, to create those debts, can only be understood as the triumph of organized crime, at the highest levels, whereby the biggest gangsters were the banksters, able to dominate governments to legalize such massive crimes that everyone is now being sucked into the social black holes of those runaway enforced frauds!

Most people have to work for their money, and delusionally believe that somehow that wealth was being loaned, and therefore, should be repaid. However, almost all money was actually made out of nothing as debts. No only is it arguable there is a doctrine of odious debts, to say that fraud should not that be repaid, but also, that basic debt slavery system has reached the point of debt insanity, where it is no longer possible to be repaid.

The global monetary system has become a metastasizing cancer, or a parasite killing its host. All the ordinary people who were working for their money, and believed in the values that money represented, have gradually been overwhelmed by the runaway triumphs of the legalized frauds of making money out of nothing as debts. Argentina is merely one of the peripheral countries which was leading the way for the human species to crash into the wall of debt insanity, and bounce off the cliff of consequences, whose final outcome can not be seen at the present time ...

At the bottom, money is measurement backed by murder. It is not clear at the present time, in a globalized system of electronic frauds, backed by the threat of the force of atomic bombs, how utterly insane the possible resolutions of these problems are going to become. After one faces the FACT that there was NO genuine consideration in the contracts to lend "money" made out of nothing but debts, there is no clearly coherent way how to fix up the resultant problems caused by prolonged social domination by systems of enforced frauds.

Surely, repudiating odious debts in one idea. However, since the debt controls were backed up by the death controls, it is not apparent how those who repudiate odious debts are going to deal with the backlash. Argentina being cut off from the supply of more money made out of nothing as debts is a serious problem, when all the rest of world operates its systems of robbing resources through that kind of credit system, which was made and maintained by the biggest and best organized gangs of criminals, namely governments controlled by the banksters.

aka_ces's picture

"the pyramidion people" !

RM, the only Google entries I find for that appear to be yours.  Great phrase, sounds like it comes from a future story-book, provided there will be people around able to recollect our present as a past.  

aka "The Pyramidions"  

Radical Marijuana's picture

Lucky I spelled that phrase right!

I have a bad habit of spelling pyramid wrong, for some reason!

The Pyramidion People should understand that the social pyramids are actually toroidal vortices, which makes them most responsible for recycling the wealth pumped up from the bottom back down to the bottom. Tragically, the current crop of Pyrmaidion People seem to have become criminally insane, and therefore, are astonishingly able to deliberately ignore that what goes around comes around!

I like to daydream that, someday, "The Pyramidions" will operate in a more enlightened way. However, at present, they appear to me to have become egotistical madmen! Unfortunately, the only test in the past for getting to the top of the social pyramid systems were to be able to be the best at dishonesty, and backing that up with violence. Their real roles as the controlling components of the overall social pyramid systems appear to have mostly gotten lost in their struggles to fight to make and maintain their position at the top of those social pyramid systems!

The ability to control the government through applying the methods of organized crime has tended to wipe out the ideal role of politicians as serving the public interest. Instead, almost all of our politicians have become puppets, who are NOT "The Pyramidions," but rather lower level pathetic political puppets, whose only job is to fool enough of the masses muppets, enough of the time.

IF only the majority of people had not been reduced to being Zombie Sheeple, then "The Pyramidions" might be wise, however, obviously, that is NOT the case now, where "The Pyramidions" get to operate behind the scenes, while manipulating others to put on the bad show business of political puppets pretending that they are  "The Pyramidions," when they are obviously not.

Theoretically, President Obama should be one of "The Pyramidions."  However, it is a cruel joke to assert Obama actually is in control, when he is obviously a puppet of the banksters. Obama seems to be not much more than the "Golfer in Chief," who sometimes takes break from golfing to read a teleprompter.

In that context, I wonder whether Obama is even helping to keep the golfing related businesses going?

The Golf Business Is Terrible
aka_ces's picture

seems the "Golf Galaxy" at "Dick's Sporting Goods" is imploding

Gromit's picture

I own 20 bonds and I'm not stunned.

I've been expecting this move and look forward to picking up $700 US in BsAs twice a year.

JRobby's picture

You could not find some math wiz / retard fuck to write a CDS on those 20?