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Argentine Bonds Plunge as Government Proposes Debt Swap

Argentine Bonds Plunge as Government Proposes Debt Swap

Posted by Shanelle Weir on June 18, 2014

Argentine bonds tumbled for a third day as investors doubted the nation can skirt a U.S. court order and avoid default by shifting international debt into the local market.

The proposal last night by Economy Minister Axel Kicillof to swap securities subject to New York laws into local debt is technically difficult and of limited appeal for many holders of the restructured notes, analysts at Credit Suisse Group AG, Citigroup Inc. and Jefferies Group LLC said in reports. The nation's restructured debt sank the most in emerging markets to trade at less than 71 cents on the dollar, a three-month low.

“It is difficult to imagine any financial intermediaries or even legal advisories willing to take the risk of being perceived as violating a U.S. Court order,” Citigroup’s Guillermo Mondino and Jeffrey Williams wrote. “A significant number of market participants may have to either sell their holdings or hold on to a bond that might enter technical default.”

Officials overseeing South America’s second-largest economy say the nation doesn’t have sufficient reserves to pay what they estimate could be $15 billion of claims from holders of defaulted bonds that didn’t participate in two debt exchanges following the country’s 2001 default. After the U.S. Supreme Court said June 16 it wouldn’t consider the case, Argentina is bound by a U.S. District Court ruling that it can’t make interest payments to holders of restructured international bonds without paying the defaulted notes as well.

Cabinet officials will meet with lawmakers today to discuss how to shift investors into local-law bonds, Kicillof told reporters last night. The government will also send lawyers to meet with U.S. District Judge Thomas Griesa in New York to discuss the ruling, he said.

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