The Market Ticker
Commentary on The Capital Markets- Category [Bonds]

Oh, the amused smile I have on my face this morning...

Argentina plans to pay its foreign-currency bonds locally to sidestep a U.S. court ruling that blocked payments last month and caused the nation to default for a second time in 13 years.

The government will submit a bill to Congress that lets overseas debt holders swap into new bonds governed by domestic law with the same terms, President Cristina Fernandez de Kirchner said in a nationwide address yesterday. Payments will be made into accounts at the central bank instead of through Bank of New York Mellon Corp., the current trustee.

What's going on here is that a US Court tried to tell a foreign government (ha!) what they had to do.  Specifically, it tried to bar Argentina from imposing a preference on paying newer bondholders instead of the "holdouts" that had bought their debt on the secondary market as it collapsed, then sued to try to gain a windfall profit.

They got a series of US Court rulings that blocked payments to other, unrelated bondholders that had been issued new bonds, unless the holdouts got paid.

That happened because the payment agent through which the money flowed was in the US, and therefore the US Courts could block the payments.

Nice try guys.

What Argentina is now going to do is offer the newer bondholders, who had the US Government prevent them from getting paid even though Argentina both has the ability and desire to pay them, a swap to local-jurisdiction bonds on the same terms.  In other words, no more US payment agent.

Poof! goes the US ability to block those payments.

Of course there will be more threats, but the fact of the matter is that the US Government has zero jurisdiction over Argentina.  If it wishes to offer a swap to creditors and the creditors accept it, that's up to them.  Given that if they take it they get paid immediately and on a forward basis and if they don't who knows if they'll ever get paid, well..... 

What do you think is going to happen?

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