When Argentina went insolvent in 2001/2002, it failed to service around $100 billion in debt. This debt was restructured and 97% of all investors agreed to the new terms including a 70% haircut in order not to lose their entire investment. The remaining 3% of lenders, including the hedge funds now suing Argentina for a full repayment, still hold the original bond.
On June 31, 2014, Argentina has to service the restructured bonds with about $500 million. In 2012, they lost a lawsuit against the hedge funds claiming the full repayment of their bonds. The trial was held in New York because the bonds are governed under US law.
Argentina is willing to negotiate with the holdout investors for the first time since they lost the lawsuit. The government got under pressure after a US court prohibited them to service the restructured debt if the holdouts are not serviced as well. Therefore, Argentina is not allowed to make the $500 million payment due on June 31 if they do not enter an agreement with the holdout investors. If they do not service this debt until July 31, they are technically bankrupt.
The Argentinian minister of economics said this moves Argentina closer towards default and threads the hedge funds that in such a case they would not get anything. Negotiations are scheduled for next week.
Argentina requested to get more time for negotiations and the allowance to make payments to restructured bonds. This request was turned down by the hedge funds and US judges because it would give Argentina more time to launch an evasion plan and removes all pressure from Argentina to negotiate a deal.
Funds said, they are still open for negations and will only grant more time if those process successfully.
Argentina’s economic minister said he is willing to negotiate but only on terms set by the Argentina government. These include that the agreed payments on the restructured debt can be made.
After Argentina deposits $593 million at Bank of New York Mellon US judges threat Argentina not to pursue an illegal payment to restructured bondholders.
Furthermore, judges said to take legal actions against every bank helping Argentina to exercise such illegal payments.
A consensus emerges: Argentina is willing to pay of the debt and settle for a payment of $1,5 billion.
Argentina says to be willing to negotiate with a mediator but not with the hedge funds directly. The US courts assign a mediator.
The fight extends to beef. The organisation American Task Force Argentina (ATFA) puts more pressure on Argentina by suggesting that beef from Argentina should no longer be imported to the US due to insufficiency of regulations to prevent diseases. Argentina earns about $100 million with beef every months.
Both, the hedge funds and Argentina, meet the mediator on the 12th but have still no direct contact. Hedge funds say they would agree to be compensated with a mixture of cash and bonds. Argentina leaves the negotiations.
China invests $14 billion in Argentina and enters into a currency swap of $11 billion to widen Argentina’s financial options.
Over all, bilateral relationships should be improved.
Judges ordered hedge funds and Argentina’s government to negotiate and reach a deal as sons as possible to avoid the default of Argentina. Argentina’s request to suspend previous rulings blocking payments was refused by the New York judges. The next meeting is scheduled for Wednesday.
Argentina’s economic minister says that the holdout investors are unwilling to renegotiate the defaulted bonds as other investors already did and are demanding “exorbitant sums”. According to him Argentina is willing to negotiate.
July 30 - 1
The deadline for negotiations ends this night between Wednesday and Thursday. If Argentina does not reach a deal within the next hours, they are technically bankrupt by tomorrow.
A small progress was a rule of New York judge Griesa on Monday that allowed US banks to pursue payments for Argentina made in Pesos on bonds regulated under their law. This allows Argentina to make parts of their interest payments due tomorrow at last. But still, the bonds regulated under US law cannot be serviced.
July 30 - 2
With just a couple of hours left before Argentina is technically bankrupt, both parties have met for face-to-face negotiations in New York for the first time with the mediator.
A slight advance was made when Argentinian banks announced to guarantee for bond payments to avoid a default. They are a major holder of Argentina government bonds.
After the deadline for negotiations ended at midnight (New York Time) and no deal was reached, Argentina is bankrupt although the money for interest payments is deposited at a US bank.
Argentina's economic minister said after negotiations ended that they have made a good offer which the hedge funds refused to accept.
August 01 - 1
Argentina says they are willing to negotiate with the hedge funds after the deadline has passed. Furthermore, they blame the funds and the assigned mediator for the failure of previous negotiations and asked the court to assign a new one.
The New York court ordered both parties to renegotiate and refused to assign a new mediator.
August 01 - 2
Hedge funds are betting on a come back of Argentina. Some funds are buying Argentinian equity in order to speculate on an economic upturn after successful negotiations.
August 02 - 1
The International Swap and Derivative Association (ISDA) declares Argentina’s default. This means that Credit Default Swaps on Argentinian debt apply. Previously, S&P as well as Fitch declared the partial default of Argentina.
August 02 - 2
Argentina says it is not bankrupt and open for negotiations. Asides, Argentina has assigned national regulators to investigate whether or not the hedge funds ‘attacked’ Argentina. Those are going to ask the US for information.
Argentina’s regulators are investigating due to possible insider trading. The hedge funds are accused to use insider information when buying Argentina’s outstanding bonds. Argentina expects the US regulator SEC to cooperate and deliver information.
According to Bloomberg, Deutsche Bank, JP Morgan Chase, Citigroup and HSBC were on negotiations between the hedge funds and Argentina on the first of August. Those were private talks were banks offered to buy outstanding fonds from hedge funds partially.
Argentina wants the International Court of Justice to rule on the dispute with the hedge funds. According to Argentina, US courts are a threat to Argentina’s sovereignty. The International Court of Justice will only take actions in this case if the United States accept the court as a mediator. Experts say this is very unlikely.
US courts threat Argentina with fine due to contempt of court. Argentina was accusing the judges in New York in articles in the New York Times and the Wall Street Journal of abuse of power.
According to Reuters, the international banks including Deutsche Bank and Citigroup have reduced their offer for the Argentinian bonds to 50ct per dollar. Last week they wanted to pay 80ct per dollar. The new offer is said to be a result of a lack of securities Argentina has to offer. Because banks will only be repaid after the RUFO clause expires at the end of this year, they want some securities before actually getting repaid after negotiating with Argentina in 2015.
August 14 - 1
Aurelius Capital, one of the holdout investors, says that no private solution is realistic because Argentina has not made any acceptable offers by now.
August 14 - 2
The Argentinian Peso fell to a new record low after the central banks has surprisingly reduced the interest rates. The official rate is at 8.2730 Pesos per USD. This is a result of massive capital outflows.
August 15 - 1
Hedge funds are trying to get access to President Kirchner’s private wealth. They convinced a judge in Nevada to investigate who is owning 123 bank accounts in Panama. Officially, those are owned by the Argentinian businessman Lazaro Baez but unofficially, they may be owned by Kirchner. The money is said to come from illegal activities of Kirchner and her husband including stealing it from the country, says Kirchner’s former secretary. Argentinian officials are trying to investigate as well but are stopped and disturbed by the Kirchner administration.
August 15 - 2
The US corporation RR Donnelly has closed a factory in Argentina and eaves 400 people unemployed. Kirchner wants to use anti-terrorism laws to stop them because there is no economic need for the shut down.
August 15 - 3
Holders of Argentinian bonds in Euro are claiming that their bonds are not regulated under US but under British law. The US court ruling prohibiting a payment does therefore not apply to them and they should, according to their claim, be paid.
Argentina wants to settle payments in Buenos Aires instead of New York. This is done in order to step aside of the US court rulings and make payments to bondholders. Payments are pursued by the Argentinean central bank after bondholders have exchanged their current bonds to ones regulated under Argentinean law. The law allowing this is ready to be passed by the parliament.
Judge Thomas Griesa says that the plans of Argentina are illegal. While hedge funds want the court to convict Argentina of contempt of court, Griesa is not going to take legal actions right now. He advices the parties to continue negotiations.
The World Trade Organisation says in a ruling that Argentinean import restrictions are illegal and against principles of free trade. The EU, Japan and the United States have complained at the WTO that Argentina is slowing down imports using bureaucratic means.
August 26 - 1
A group of hedge funds sues the Bank of New York Mellon in London to make payments on German infrastrukture investments. Because Eurobonds of Argentina are regulated under British law, the New York court ruling does not apply to those and payments should be made, Argue the suing hedge funds.
August 26 - 2
Argentina prohibits the Bank of New York Mellon to make business in Argentina. The government argues that the bank is not fulfilling contracts with the government including servicing their debt.
August 31 - 1
The International Capital Market Association advices countries to use new rules within their bond contracts allowing them to restructure all debt if a majority of investors agrees to the restructuring. Read about this in our news item from September 1.
August 31 - 2
Federal minister of finance, Wolfgang Schäuble, criticises Argentina for their default and behaviour. He says the country is not stable and that not the funds are the problem but the country itself.
Countries should introduce a system that allows them to declare bankruptcy. This means for them, that they need to give up some of their sovereign power for an organised manner of getting insolvent.
Furthermore, debt restructuring should be made easier. Such can be done by introducing contract clauses that allows the restructuring of all debt under the condition that a majority of lenders (for example two-third) agrees to it. This eliminated the possibility of a small group of holdout investors claiming for full compensation. The EU has already assigned all member states to include such a clause in every bond contract lasting longer than one year.