Argentina proposes debt swap, and bond yields fall
Argentina may have found a way out of its default debacle, but it could be messy and is unlikely to end in repayments for the holdout creditors.
Read the background to the saga here.
President Cristina de Kirchner, relentless populist to some and hero to others, is proposing a debt swap and the markets have listened: according to the Financial Times, Argentina's benchmark restructured bonds, due in 2033, have fallen to their lowest level since 19 June.
What a debt swap means is the South American nation will change the intermediary bank (trustee) that distributes repayments on its behalf; ditching the incumbent Bank of New York Mellon (BNYM) and appointing an Argentine replacement in its stead.
This debt-swap would allow Argentina to repay bondholders under Argentine law, rather than US jurisdiction. The value owed would not be altered.
A change of jurisdiction would help Argentina immensely, given that New York judge Thomas Griesa blocked BNYM from delivering $539m in repayments, causing Argentina to default.
Such a move would mean very little chance of the holdout creditors being paid back the money they claim they are owed, at least until Kirchner leaves office.
Argentina defaulted back in 2001, and many creditors (around 93 per cent) agreed to 65 per cent haircuts on the money they were owed.
Not all did however, and a group of hedge funds headed by Elliot Management have been chasing Argentina to pay up.
Argentina argues that it cannot legally pay the holdout group the full whack without triggering a clause meaning Kirchner's government would have to offer the improved terms to all bond holders. That, they claim, would have led to bankruptcy.