Argentina enters selective default as negotiations fail

Talks between Argentina and bond holdouts led by hedge fund NML Capital have failed. With no agreement reached the country has entered default for the second time in 13 years after missing out on payments to its creditors.

The selective default will apply to the country's New York law bonds covered by court orders and not to other classes of bonds.

A statement from Daniel Pollack the special master appointed by US judge Thomas Griesa to conduct and preside over settlement negotiations between the two sides, noted that no agreement was reached.

The ruling by Griesa called on the country to pay the holdout creditors, at the same time as the holders of restructured bonds, under the so-called pari passu or equal treatment ruling. This would have meant a payment of US$1.5bn to the holdouts as well as US$539m in interest payments to restructured creditors holding US$13bn in bonds.

"Unfortunately, no agreement was reached and the Republic of Argentina will imminently be in default," said Pollack. "Today, July 30, was the last day of the grace period for the Republic of Argentina to pay many hundreds of millions of dollars of interest to its 'exchange' bondholders, i.e. those who took bonds in 2005 and 2010 in exchange for the bonds they held following the default of 2001."

"The Republic of Argentina did not meet those conditions and, as a result, will be in default," added Pollack.

Pollack issued his statement as the Argentine economy minister Axel Kicillof launched into a long speech during a press conference from the Argentine consulate in New York, and followed action taken by rating agency S&P which downgraded Argentina's debt from 'CCC-' to selective default earlier in the day. Other rating agencies are expected to follow with their own downgrades.

Kicillof, who attended the talks at the request of Pollack, repeated Argentina's position at the press conference, that the country cannot pay the holdouts more than they paid in previous exchanges in 2005 and 2010 and lamented that Griesa required the request for a stay to come from the plaintiffs led by NML.

The minister also chastised Griesa for blocking payments to holders who had previously exchanged their bonds, laying the blame for default at his feet and saying the country will not sign an agreement by "extortion."

Asked about Argentina's plan to alter the jurisdiction on the bonds from US to Argentine law, Kicillof did not give a clear answer, instead saying "we will continue to talk to the mediator and the vulture funds."

Pollack's statement, coming through by email as Kicilloff was addressing the televised press conference, appeared to catch Kicillof off guard as he noted his "surprise at the statement by Daniel Pollack."

"Default cannot be allowed to lapse into a permanent condition or the Republic of Argentina and the bondholders, both exchange and holdouts, will suffer increasingly grievous harm, and the ordinary Argentine citizen will be the real and ultimate victim," said Pollack.

In an emailed statement to BNamericas, an NML Spokesman said "During this process, the Special Master proposed numerous creative solutions, many of which were acceptable to us. Argentina refused to seriously consider any of them, and instead chose to default."

Talking to BNamericas, Charles Blitzer of Blitzer Consulting and a veteran of numerous sovereign debt restructurings said, "This is a sad day for Argentina and its people. Solutions were proposed by the plaintiffs and local banks which could have avoided a default and paved the way for Argentina to attract the capital it needs to revive its economy and restore rapid growth. The plaintiffs and even Argentine financial institutions worked hard to find workable solutions. The government's response seems to be "nunca" (never).