Argentine GDP Warrants Surge After N.Y. Fed Submits Letter in Court Case

By Taos Turner

Published November 19, 2012

Dow Jones Newswires

Argentine securities linked to economic growth, known as GDP warrants, surged Monday after the Federal Reserve Bank of New York submitted a letter that some believe could help the South American nation in its legal dispute against "holdout" bondholders in a U.S. federal court case.

The TVPA GDP warrant soared 5.33% to 84 Argentine pesos ($17.50), the TVPP rose 2.62% to ARS16.06 and the TVPY jumped 5.86% to ARS81.10.

In a letter submitted to the court, the New York Fed said that depending on how the court rules, the case could have undesired implications that go beyond Argentina and its relationship with its bondholders.

The Fed's counsel said the possibility of an injunction seizing funds transferred to creditors could be "overbroad and could have operational ramifications that impede the smooth and efficient operation of the payments system."

Some analysts interpreted this to mean that the judge in the case might be less inclined to rule against Argentina. Local media reported that Argentina's finance secretary was "surprisingly pleased" by the Fed letter.

A U.S. appeals court in late October ordered Argentina to begin paying Elliott Management Corp.'s NML Capital Ltd. and other holdouts alongside the rest of its creditors and sent the case back to federal Judge Thomas Griesa in New York to determine how such payments should be made. Those hearings are under way, and Judge Griesa has said he wants to move quickly.

Judge Griesa has awarded about $1.6 billion to NML, which last month managed to get a Ghanaian court to seize the ARA Libertad, an Argentine navy training ship which had put into port there, as compensation.

Argentina has been battling the holdouts, which it calls "vulture funds," for a decade. While it has paid those who took a restructuring deal of about 33 cents on the dollar for 93% of the defaulted bonds, officials have repeatedly said the holdouts won't get a penny.

The dollar-denominated 2017 Bonar X bond rose 1.73% in price terms to ARS520 ($108), while the dollar-denominated 2015 Boden bond rose 1.8% to ARS567.

Meanwhile, the peso weakened slightly to ARS4.8045 to the U.S. dollar on the MAE foreign-exchange wholesale market, compared with ARS4.80 in the previous session.

On the black market--where residents pay a premium to skirt government restrictions on dollar buying--the exchange rate weakened to between ARS6.35 and ARS6.40 to the dollar, according to financial newspaper El Cronista.

Argentina's benchmark Merval stock index closed a bit higher, ended up 0.53% at 2,295.33 points in volume totaling about ARS25 million ($5.2 million).

The aluminium company Aluar Aluminio Argentino SAIC (ALUA.BA) led the gains, rising about 1.9% to ARS2.10 while the oil producer YPF SA (YPFD.BA, YPF) led the decliners, falling 3% to ARS68.50. The most-traded stock belonged to Grupo Financiero Galicia SA (GGAL.BA, GGAL), which rose about 3.7% to ARS3.40.

Write to Taos Turner at taos.turner@dowjones.com