Argentina’s debt default spread to its Par bonds on Friday after the country failed to complete an interest payment, raising the risk that creditors could demand that the country’s cash-strapped government immediately repay all of its debt.
Argentina deposited a $161m payment with a newly appointed local trustee last month to try to circumvent US court orders for it to settle with “holdout” investors. The holdouts are suing to get full repayment of bonds from a 2002 default before holders that accepted the terms of a debt restructuring get paid by the government.
But Par bondholders could not collect the $161m payment due to legal and technical hurdles, and the 30-day grace period since the coupon was originally due expired at midnight Thursday.
Argentina’s economy ministry has not said whether any bondholders have come forward to collect.
Argentina had already defaulted in July on its discount notes, but holders of the Par bonds might be more likely to claim accelerated payment of the principal because the Par bonds are trading at a steeper discount to their original value. Demands for accelerated payment could leave Argentina facing claims of up to $30 billion, more than it holds in foreign reserves.
Downgrade
Fitch Ratings weighed in on Friday by cutting Argentina’s foreign law Par bonds to the rock bottom level of “D”, for Default.
“The only exchanged foreign currency bond under foreign law that remains performing is the Global17 bond, which has a coupon payment scheduled for Dec 2,” the credit ratings agency said in a statement.
Sources owning Argentine debt say other creditors have approached them about forming a group to accelerate payment. The move would require the backing of investors holding at least 25% of the nominal amount of any single bond series.
“We were asked in very theoretical terms what our thoughts were on acceleration,” said one source. “It was something intermediated by an investment bank. The shop leading the offer did not want to be identified.”
Analysts say many investors will be hesitant about such a move as it could mean costly litigation with an uncertain outcome. It could also trigger a balance of payments crisis and further damage Argentina’s ailing economy, making an eventual payment even more difficult.