So 93% of the bondholders agreed to the restructuring but about 7% have heldout. The US court has ruled that the interest payment to those who have agreed to the restructuring cannot be paid unless the 7% are paid in full.
Argentina are claiming that they can't afford to pay the 7% in full but have paid the 93% and the US court has stopped the payment. It does seem clear that Argentina cannot afford to 100% of bondholders the full amount.
My view is that the 93% should be paid the agreed amount, but if Argentina cannot afford to pay the 7% who are holding out then they should default on those debts, unless they also accept a restructuring.
Now if you disagree with my view that's fine, everyone has a right to an opinion.
Didn't a similar thing happen in Greece? I assume the agreements must have been worded differently.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
I was asking why it matters to pay any of the USD debt. Why not just default on the lot? It is unsecured debt. There are no mortgages involved its just a bond. Right?
Responsible debtors should pay debts in full. If that isn't possible they should pay what they can. In this case Argentina reached an agreement with the majority of bondholders. We might argue about the agreement, but a deal is a deal. Once struck it should be binding.
If Argentina pay any bondholders the full amount then they have to pay every bondholder the full amount. We know that they can't afford to do that.
In an ideal world my view is that they should pay those who have agreed to the deal and default on the holdouts. In reality Argentina will probably have to default on all it's debts because of the US court ruling.
newjez
2 Aug 2014, 06:32 PM
Didn't a similar thing happen in Greece? I assume the agreements must have been worded differently.
I don't know. I do know that Greece had to restructure debts more than once but I don't know the detail.
Responsible debtors should pay debts in full. If that isn't possible they should pay what they can. In this case Argentina reached an agreement with the majority of bondholders. We might argue about the agreement, but a deal is a deal. Once struck it should be binding.
If Argentina pay any bondholders the full amount then they have to pay every bondholder the full amount. We know that they can't afford to do that.
In an ideal world my view is that they should pay those who have agreed to the deal and default on the holdouts. In reality Argentina will probably have to default on all it's debts because of the US court ruling. I don't know. I do know that Greece had to restructure debts more than once but I don't know the detail.
There are only 7% of the original bonds. The other 93% were held by people who agreed to return them to the government. So Argentina can afford to pay but choses not to keep to its agreement *and* refuses to meet the holdouts for a negotiation.
>>We might argue about the agreement, but a deal is a deal. Once struck it should be binding.
So a deal is a deal apart from when you dont want to pay?
newjez
2 Aug 2014, 06:32 PM
Didn't a similar thing happen in Greece? I assume the agreements must have been worded differently.
The difference appears to be:
1. Argentina pays USD interest via New York banks
2. It agreed that US courts will be used to settle disputes
So Argentine money is now frozen in the US so even if Argentina paid the USD interest via another channel the court would be able to use the interest payment money in part payment for the holdouts.
It seems to me however that any country is open to this kind of action since it must be possible to get hold of money all around the world and hold it till a country honoured all bonds outstanding, where if banks do not cooperate they simply cannot operate within or with the western world.
It seems to me however that any country is open to this kind of action since it must be possible to get hold of money all around the world and hold it till a country honoured all bonds outstanding, where if banks do not cooperate they simply cannot operate within or with the western world.
Not if the loans were originally in their own currency and under the jurisdiction of their own courts. That's where they erred but it's too late to fix that now.
Quote:
So Argentine money is now frozen in the US so even if Argentina paid the USD interest via another channel the court would be able to use the interest payment money in part payment for the holdouts.
Yes, but more than that the original agreements on the 93% who agreed to the restructuring will be ripped up and the full amount must be paid on all of the bonds for both the 7% holdouts and the 93% who agreed.
Any expressed market opinion is my own and is not to be taken as financial advice
Not if the loans were originally in their own currency and under the jurisdiction of their own courts. That's where they erred but it's too late to fix that now.
Yes, but more than that the original agreements on the 93% who agreed to the restructuring will be ripped up and the full amount must be paid on all of the bonds for both the 7% holdouts and the 93% who agreed.
Peter One of us is muddled up
The issue now is that if the vulture funds are paid their 1.5B then approx 15 to 20B USD will have to be paid in total to all of the holdouts so all of the bondholders are treated the same.
The other bondholders agreed to surrender their rights when they returned their bonds
The legal peculiarities apply to bondholders, rather than people who previously held bonds
The main problem is that a clause in the restructured bonds prohibits Argentina from offering the hold-outs better terms without paying everyone else the same. Since it cannot afford to do that, it says it had no choice but to default.
Any expressed market opinion is my own and is not to be taken as financial advice
The main problem is that a clause in the restructured bonds prohibits Argentina from offering the hold-outs better terms without paying everyone else the same. Since it cannot afford to do that, it says it had no choice but to default.
Funny how you omitted the very next paragraph of The Economist text you quoted!
It is all rather interesting. The clause expiring anyway in 2014 only applies to any voluntary payments made by Argentina to remaining holdouts.
Funny how you omitted the very next paragraph of The Economist text you quoted!
It is all rather interesting. The clause expiring anyway in 2014 only applies to any voluntary payments made by Argentina to remaining holdouts.
It's possible that it wouldn't apply to those who accepted the restructure, but in truth neither of us has a clue about a future decision of a US court.
Any expressed market opinion is my own and is not to be taken as financial advice
NEW YORK – On July 30, Argentina’s creditors did not receive their semiannual payment on the bonds that were restructured after the country’s last default in 2001. Argentina had deposited $539 million in the Bank of New York Mellon a few days before. But the bank could not transfer the funds to the creditors: US federal judge Thomas Griesa had ordered that Argentina could not pay the creditors who had accepted its restructuring until it fully paid – including past interest – those who had rejected it.
It was the first time in history that a country was willing and able to pay its creditors, but was blocked by a judge from doing so. The media called it a default by Argentina, but the Twitter hashtag #Griesafault was much more accurate. Argentina has fulfilled its obligations to its citizens and to the creditors who accepted its restructuring. Griesa’s ruling, however, encourages usurious behavior, threatens the functioning of international financial markets, and defies a basic tenet of modern capitalism: insolvent debtors need a fresh start.
Sovereign defaults are common events with many causes. For Argentina, the path to its 2001 default started with the ballooning of its sovereign debt in the 1990s, which occurred alongside neoliberal “Washington Consensus” economic reforms that creditors believed would enrich the country. The experiment failed, and the country suffered a deep economic and social crisis, with a recession that lasted from 1998 to 2002. By the end, a record-high 57.5% of Argentinians were in poverty, and the unemployment rate skyrocketed to 20.8%.
Argentina restructured its debt in two rounds of negotiations, in 2005 and 2010. More than 92% of creditors accepted the new deal, and received exchanged bonds and GDP-indexed bonds. It worked out well for both Argentina and those who accepted the restructuring. The economy soared, so the GDP-indexed bonds paid off handsomely.
But so-called vulture investors saw an opportunity to make even larger profits. The vultures were neither long-term investors in Argentina nor the optimists who believed that Washington Consensus policies would work. They were simply speculators who swooped in after the 2001 default and bought up bonds for a fraction of their face value from panicky investors. They then sued Argentina to obtain 100% of that value. NML Capital, a subsidiary of the hedge fund Elliot Management, headed by Paul Singer, spent $48 million on bonds in 2008; thanks to Griesa’s ruling, NML Capital should now receive $832 million – a return of more than 1,600%.
The figures are so high in part because the vultures seek to earn past interest, which, for some securities, includes a country-risk premium – the higher interest rate offered when they were issued to offset the larger perceived probability of default. Griesa found that this was reasonable. Economically, though, it makes no sense. When a country pays a risk premium on its debt, it means that default is a possibility. But if a court rules that a country always must repay the debt, there is no default risk to be compensated.
Repayment on Griesa’s terms would devastate Argentina’s economy. NML Capital and the other vultures comprise just 1% of the creditors, but would receive a total of $1.5 billion. Other holdouts (6.6% of total creditors) would receive $15 billion. And, because the debt restructuring stipulated that all of the creditors who accepted it could demand the same terms as holdouts receive, Argentina might be on the hook for $140 billion more.
Every Argentine might thus owe more than $3,500 – more than one-third of average annual per capita income. In the United States, applying the equivalent proportion would mean forcing every citizen to pay roughly $20,000 – all to line the pockets of some billionaires, intent on wringing the country dry.
What’s more, the existence of credit default swaps creates the possibility of further gains for the vultures. A CDS insures against a default, paying off if the bonds do not. They can yield substantial returns, regardless of whether the bonds are repaid – thus reducing their holders’ incentive to achieve an agreement.
In the run-up to July 30, the vultures conducted a scare campaign. A second default in 13 years would be a big setback for Argentina, they claimed, threatening the country’s fragile economy. But all of this presumed that financial markets would not distinguish between a default and a Griesafault. Fortunately, they did: Interest rates for different categories of Argentine corporate loans have not reacted to the event. In fact, borrowing costs on July 30 were lower than the average for the whole year.
Ultimately, though, the Griesafault will carry a high price – less for Argentina than for the global economy and countries needing access to foreign financing. America will suffer, too. Its courts have been a travesty: As one observer pointed out, it was clear that Griesa never really fathomed the issue’s complexity. The US financial system, already practiced at exploiting poor Americans, has extended its efforts globally. Sovereign borrowers will not – and should not – trust the fairness and competence of the US judiciary. The market for issuance of such bonds will move elsewhere.
Any expressed market opinion is my own and is not to be taken as financial advice
Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.
Forum Rules:
The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.
Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.
Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.
This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.
Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ
Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy