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Montag, 2. April 2012

U.S. Ruling on Argentine Bonds Raises Risk of Second Default, Citi Says

Autor: nicco

Datum: 06.03.2012, 20:24

 


U.S. Ruling on Argentine Bonds Raises Risk of Second Default, Citi Says

A U.S. court ruling that Argentina must pay interest on its defaulted debt by the time it makes payments on restructured bonds is raising the risk of another default, Citigroup Inc. said.

The Feb. 23 ruling by U.S. District Judge Thomas P. Griesa could put bond payments at risk, Citigroup said in an e-mailed report today. The decision, which has been suspended pending appeal, may not be enforceable, the report said.

“The recent ruling against Argentina by Judge Griesa poses a potential significant, although low probability, risk,” Jeffrey Williams, a Citigroup emerging market debt strategist, wrote in the report. “If the decision is not overturned by an appeals court, we believe payments on the current Argentina bonds could be at risk.”

Yields on Argentine dollar bonds due in 2017 rose 13 basis points to 9 percent at 1:47 p.m. Buenos Aires time, while the extra yield investors demand to own Argentine debt over U.S. Treasuries fell 1 basis point to 819, the highest among major emerging market economies after Venezuela.

“This ruling from Griesa has little legal basis,” Economy Ministry Hernan Lorenzino told reporters in Buenos Aires yesterday. “Argentina’s payments on performing bonds will not be altered. There are no changes in Argentina’s payment obligations.”

Press officials at the economy ministry referred to Lorenzino’s comments when contacted by Bloomberg today.

Bond Contracts

The ruling is based on a clause in the bonds’ contracts that states that all bondholders should be treated equally, forcing Argentina to pay the full amount that is owed to NML when it makes a payment on its other bonds. If the decision is upheld, “nearly the entire payment,” for Argentina’s dollar bonds would be redirected to NML until the fund is fully paid, Williams wrote.

Argentina is “permanently prohibited” from taking any action to evade the court’s ruling or render it ineffective by altering or amending how it makes payments on its bonds, Griesa said. NML owns a beneficial interest representing $132 million principal amount on certain floating-rate accrual notes issued by Argentina, according to court documents.

http://www.bloomberg.com/news/2012-0...citi-says.html

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