Argentina to burn bondholders in defiance of US court ruling

Argentinian president Cristina Fernandez de Kirchner ruled out complying with a US court order to pay holders of defaulted bonds in full, leaving the country two weeks to come up with a way to avoid a second debt crisis in 13 years.

Speaking in a nationwide address hours after the US supreme court declined to hear Argentina’s appeal of the case, she used the term “extortion” to describe the ruling that requires the nation to pay defaulted bondholders when it makes payments on its restructured debt.

The country's next interest payment is due June 30th, limiting the time for Ms Fernandez to reach an accord with holdout creditors including hedge-fund manager Paul Singer's Elliott Management Corporation.

Ms Fernandez said complying with the ruling was impossible and would exposeArgentina to as much as $15 billion in claims from creditors who rejected restructuring offers following the country's $95 billion default in 2011.

The president said she instructed economy minister Axel Kicillof, who negotiated to resolve debt disputes with the Paris Club and Repsol SA in the past four months, to figure out a way to keep paying holders of restructured notes.

“Argentina has the willingness to negotiate,” Ms Fernandez said. “What it doesn’t have - and I’ll spell it out for you - is the need to be subjected to such extortion. I don’t think it’s deserved.”

Argentina’s restructured bonds plunged an average 9.3 per cent yesterday as investors considered the country’s next steps. Ms Fernandez said in August that she would offer to swap holders of restructured New York-law bonds into debt governed by local law to avoid having to pay holdout creditors in full. Government attorneys later denied having a plan to do so.

According to a May 2nd memo leaked to an Argentine website last month, the country’s attorneys recommended a default and immediate restructuring in the event the supreme court rejected the appeal, which was tied to claims totaling $1.3 billion.

Some investors are speculating Mr Kicillof may indicate as soon as today if the government's plan is to change the jurisdiction on the bonds, according to Jose Luis Espert, who runs research firm Espert and Asociados in Buenos Aires. "I don't know how viable that is, but there's very little time to negotiate," Kathryn Rooney Vera, a macroeconomic strategist at Bulltick Capital Markets, said in a telephone interview from Miami.

Last week, Mr Kicillof raised the prospect of negotiating with the holdouts, a step the country has previously rejected.

The dispute revolves around Argentina’s 2001 default on a record $95 billion in debt. The country offered to swap the securities with bonds worth about 30 cents on the dollar in 2005 and made a similar proposal in 2010. Owners tendered about 92 per cent of the outstanding debt. Argentina calls the investors who have refused previous debt exchanges “vultures” because they bought many of the bonds post-default at a discount, angling to eventually collect a windfall. “America’s highest court has spoken,” NML Capital, a unit of Elliott, said in a statement before the speech.

Bloomberg