Now that Argentina is on the legal hook for $US5.4 billion instead of $US1.7 billion in unpaid sovereign debt dating back to its 2001/2002 default, there’s the little matter of making them pay it.
One avenue Argentina’s most aggressive creditors — a group of hedge funds known as NML — is exploring right now can really only be described one way: It’s a shut out.
NML has sought a supplementary injunction that would apply to any bonds Argentina sells to clients outside the country. That means a $US1.4 billion bond sale the country pulled off in April could blow up in its face.
If New York Judge Thomas Griesa grants the injunction, Argentina may have to freeze payments on those bonds.
Plus, it means Argentina won’t be able to raise money on the international market and that its Central Bank Reserves, already low at around $US30 billion, could get even lower.
It’s a “further tightening of the noose around Argentina’s neck,” says Anthony Costantini, an attorney at Duane Morris who is representing a number of clients who bought Argentine bonds over a decade ago and haven’t been paid.
Constantini’s clients would not technically fall under the definition of what Argentina calls “vultures” — investors like Paul Singer, the leader of NML, who bought Argentine bonds for pennies on the dollar when the country defaulted back in 2001/2002.
After Argentina defaulted in 2001/2002, it was blocked from international markets, and its dollar reserves fell dangerously low as a result. As the country paid back its debt over the last decade and change, though, its pariah status started to wane.
A number of Constantini’s clients, in contrast, are Italian pensioners who bought Argentine sovereigns at face value but, like NML, didn’t want to take a 70% haircut on their debt payments as over 90% of creditors did in 2005 and 2010, when Argentina put that offer on the table.
Last summer the country technically entered into default when the Supreme Court of the United States upheld Griesa’s ruling that it had to pay all creditors equally. And although its bonds are under US jurisdiction, Argentina has argued that it need only pay the creditors who’ve taken haircuts.
Argentina, for its part, does not accept that it is in default at all. This is why Argentina tried to sell bonds in February and again in April. And although Griesa has ruled that Argentina technically can’t sell bonds to international buyers, Argentina is arguing that the buyers of its April bonds aren’t necessarily international investors.
Either way, the point is that NML is trying to stop the sale of more Argentine bonds: it wants to shut Argentina out again.