BUENOS AIRES, (Reuters) – Argentina’s bond and stock markets and peso currency dropped yesterday after Latin America’s No. 3 economy defaulted for the second time in 12 years following the collapse of last-ditch talks with holdout creditors.
The default came after Argentina failed to strike a deal with lead holdout investors NML Capital Ltd, an affiliate of Elliott Management Corp and Aurelius Capital Management, in time for a midnight Wednesday EDT (0400 GMT) payment deadline. “Those who expect us to sign any old thing, threatening us that the world will come to an end otherwise, should not count on me,” Argentine President Cristina Fernandez said in her first comments since the default.
The government maintains it has not defaulted because it made a required interest payment on one of its bonds due 2033, but U.S. District Judge Thomas Griesa in Manhattan blocked that deposit in June, saying it violated his ruling.
At that time, Griesa deemed the $539 million deposit with the Bank of New York Mellon, Argentina’s trustee bank, was illegal because it did not include a concurrent court-ordered payment of $1.33 billion plus accrued interest to the holdout investors.
Griesa scheduled a new hearing in New York on Friday at 11 a.m. EDT (1500 GMT) to discuss the default.
Buenos Aires argues that agreeing to the hedge funds’ demands to pay them in full would break a clause barring it from offering better terms to them than to those who accepted to steep writedowns in the 2005 and 2010 swaps.
Both Argentine Economy Minister Axel Kicillof and Fernandez warned that the country could bring more lawsuits to challenge the contention that it is in default.
Bondholders who participated in the two prior restructurings of the 2002 default now have to decide whether to seek immediate full payment of principal and interest on their restructured debt, a process known as acceleration.
This process requires 25 percent of the bondholders on each of 16 bonds issued in the 2005 and 2010 restructurings to ask BNY Mellon for a formal decision on default. The bank has 60 days to decide.
“I don’t think at the moment there is a clear answer to whether bondholders will accelerate a deal. It’s probably not something most bondholders would like to see,” said Olivier De Timmerman, fixed income fund manager at KBC Asset Management in Luxembourg.
