Payment of bond service due on June 30 in New York has been made impossible by Wednesday's lifting of a stay by a U.S. federal court, Argentina's economy ministry said on Wednesday, in a move that appeared to push the country closer to default.
In a late evening statement from the Ministry of Economy it said that Argentina "regrets" the lifting of the stay by U.S. District Judge Thomas Griesa in Manhattan, but that the government remained willing to pay holders of its restructured debt. However the lifting of the stay would require payment be made to holdout bond investors as well, something Argentina says it cannot afford to do. Earlier on Wednesday a lawyer for the country said in Manhattan federal court that Argentine officials will seek next week to negotiate for the first time with hedge funds that refused to take part in its debt restructuring. Argentina is locked in a 12-year-old legal fight with "holdout" creditors who refused to participate in two bond restructurings that followed Argentina's 2002 sovereign default. The holdouts, disparaged as "vultures" by the Argentine government, are suing for 100 cents on the dollar rather than swallow the steep discounts that were accepted by holders of bonds that were revamped in 2005 and 2010. The June 30 payment to those investors is now in question as another default looms. Economy Minister Axel Kicillof floated the idea on Tuesday of Argentina swapping its bonds governed by New York law for those under local jurisdiction as a way out of the bind. In Wednesday's statement, the ministry said: "Argentina reiterates its willingness to pay the holders of restructured bonds, which it has always offered to honor under Argentine law". Magistrate Griesa had warned that reopening swaps to change the debt's jurisdiction to Argentina, as proposed by Economy minister Axel Kicillof, would be considered a breach of the ruling. "The mechanism of the sort proposed by the finance minister would be a violation of the procedures and orders of the court," Griesa said. Griesa had ordered Argentina to pay the holdout funds 1.33 billion at the same time it pays bondholders who participated in the 2005 and 2010 restructurings of Argentina's 100 billion of bonds. The restructured bond holders are due a payment on June 30. If the payment isn't made, Argentina would enter a technical default on the restructured debt. "What I want is a legal mechanism to prevent another situation where the Republic can laugh off another judgment," Griesa said earlier on Wednesday. But with the late Wednesday release even Argentina's lawyers in New York seen to have been taken by surprise since they insisted that the following week a delegation would be arriving to the US to negotiate with the holdouts. "I have been told the plan is to be here next week to negotiate with the holdouts to resolve this situation," said Carmine Boccuzzi of Cleary Gottlieb Steen & Hamilton at the hearing before Griesa in Manhattan. The negotiations are part of an attempt by the country to avoid default, though Boccuzzi said "an exchange offer is not happening at this time."