MercoPress. South Atlantic News Agency

Auction 21 August to settle (and possible payout) of Argentina's defaulted swaps

Argentina's securities regulator requested information from its US counterpart, regarding potential use of privileged information by Elliott to force the default

The International Swaps and Derivatives Association (ISDA) will hold an auction on August 21 to settle Argentina’s default swaps. The auction, run by Creditex and Markit, will determine the payout that holders of protection on Argentine debt (CDS) will receive as a result of the default on July 30.

The committee has also determined a list of securities that will be deliverable into the auction, which includes the country’s Par 2038, Discount 2033 and Global 2017 notes.

But the committee did not include in the list four yen-denominated notes issued as part of the 2005 and 2010 restructurings, saying it was unable to obtain the related documentation.

Those bonds trade at a steep discount to par value, making them some of the cheapest to deliver into the auction and their exclusion from the list could result in a higher final auction price, say market participants.

ISDA’s 15-member determinations committee, which includes one of the hedge funds suing the government, Elliott Management, put Argentina effectively in default earlier this month, by ruling unanimously that a “failure to pay” event occurred when the country missed a coupon payment on some restructured foreign-law bonds.

Immediately after the default, the Argentine Economy Ministry asked the CNV to investigate whether litigation in the United States against the country by holdouts was merely the “facade of speculative man oeuvres in favor of vulture funds” to pocket profits on defaulted bonds they bought on the cheap as well as on credit default swaps (CDS).

The CNV securities regulator requested information from its US counterpart, the SEC, regarding the potential use of privileged information by Elliott to push Argentina into default and trigger CDS, recently taking information that the company was fined by French authorities over a fraudulent maneuver as a precedent.

Argentina’s credit default swaps are estimated to be worth approximately one billion US dollars, but a decision on their payment has been pushed back, seemingly amid uncertainty over the nature of Argentina's default.