Argentina Spat On What Could Be Its Last Chance To Play Nice With Hedge Funds

Wikipedia

As ordered by a New York Court, Argentina submitted its plan to pay hedge fund creditors one hour before deadline last night.

Now, the words "pay" and "plan" may sound constructive, but they're actually not.

In fact, this plan will probably make the country's legal battle over $1.3 billion worth of sovereign debt even uglier since, according to Bloomberg, the country submitted basically the same plan in 2010 to no one's satisfaction.

The plan would force creditors, lead by billionaire Paul Singer, to do exactly what they refused to do in 2005 and again in 2010 — take a massive haircut on Argentine debt.

From Bloomberg:

“The Argentines made no compromises” in their new payment offer, said Eric Fine, who helps oversee about $5 billion of emerging-market assets at Van Eck Global in New York. They are “playing for either delay or confrontation, neither of which is positive.”

If the country is looking for a delay, they could take their case to a panel of even more Judges, or try to take it to the Supreme Court, but most analysts think that's very unlikely.

Confrontation, on the other hand, could mean that a Court orders Argentina to pay the holdouts immediately. That would leave it open to $43 billion in additional claims that it can't pay and could trigger a default on its debt.

For around a decade, Argentina has refused to pay Singer and his fellow so-called "vulture capitalist" holdouts 100 cents on the dollar on principle.

The fight got so nasty that Singer had a Ghanaian port impound an Argentine naval vessel last October, and it took an international Court ruling to get the ship back home. Since then, Argentine President Cristina Fernandez de Kirchner has made special travel plans to avoid having her state jet impounded as well.

In November, a New York Court sided with Singer and his group, ordering Argentina to pay every cent. A month ago an Appeals Court ordered Argentina to come up with a plan to do that.

That's why the Singer and co. are going to feel like they've been disrespected. Ignoring the November ruling, Argentina offered to pay creditors only 1/6th of what they're owed.

To explain why, Argentine Finance Minister Hernán Lorenzino reiterated the same argument that the country has maintained all along — that paying the holdouts would be a slap in the face to over 90% of bondholders that took haircuts willingly.

One analyst described Argentina's payment plan submission as "thumbing its nose" at the entire situation, and today Argentine bonds are taking a beat down, with yields climbing to their highest level since June 2009.

The government's next scheduled payment is on April 4th. It needs to pay out $161 million worth of interest for bonds due in 2038.

It's also worth noting that in February, Argentine Central Bank reserves hit their lowest level since 2007 at $42.65 billion.

So it's the Appeals Court's move now, and given the situation in Argentina, it's going to be a big one.