Think of last night’s Argentine default as an explosion. Now even 24 hours later the dust has yet to clear, and what will remain when it does is the stuff of questions and rumours — a heady mix of speculation based on a history that tells very little.
Remember: A country has never chosen to default before.
The biggest rumour going around right now is a good one for Argentina. The word is that private banks including JP Morgan, HSBC, and Citigroup are in negotiations to buy over $US1.3 billion in debt from NML Capital, the group of investors that have sued the country for about a decade.
JP Morgan has declined to comment, though Bloomberg reports that the bank has held talks with Aregntina and that those talks are ongoing.
The story was first reported in Argentine newspaper Ambito, and contained no citation. Meanwhile, Argentine bonds have ended their two-day rally and headed downward. The Merval, the country’s stock market, is down more than 9%.
Last night, Argentina’s Economy Minster announced that negotiations to resolve a dispute with NML Capital over debt dating back to the country’s last 2001 default had collapsed. As a result, the country could not make a payment to any of the bondholders of its 2033 sovereign debt, and entered into what Standard and Poors called a “selective default,” and what the U.S. Court appointed mediator Daniel Pollack called a “technical default.”
A body called The ISDA Credit Derivatives Determinations Committee, in Washington D.C., will decide whether country entered default officially.
Argentina, for its part, insists that it is not in default because it attempted to pay some of its 2033 bondholders. However the Court, ruling that The Republic could not favour bondholders who took a haircut on that debt — exchange bondholders — over the 3% that had not — NML Capital — sent that payment back to Argentina.
“Everyone is pretty lost,” says Federico Zaldua an Argentina-based trader on Itau BBA’s Latin America bond desk. “The currency will have to be devalued… and this just speeds up the process… Inflation is bad because there is no plan.”
And this, he says, is the state the country could be in until the end of 2015, when Cristina Fernandez de Kirchner’s government is replaced with one more friendly to financial markets. That’s the worst case scenario.
“It’s not JC Penney, it’s not going away, it’s a country… the next government is going to want to get into financial governments again and get this thing resolved… This is going to get resolved… It’s a matter of when and how?”
In the meantime, it could very well be that a private buyer will step in to purchase NML Capital’s debt. That would be the best case scenario — but it doesn’t have to happen immediately.
“If was a holdout and I’m a CDS holder,” Zaldua reasoned, “I’d wait for the clearing commission to determine that there’s a default and that CDS should be triggered.”
That’s when you make your move.
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