Argentina tries to pay debt outside US

Government wants to replace BNY Mellon as bond trustee

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In its latest attempt to circumvent US courts, Argentina will seek to pay nearly $200m due on its restructured bonds by disbursing the money to investors next week via a local bank instead of Bank of New York Mellon, its trustee.

In response, holders of the country’s defaulted bonds have asked US District Judge Thomas Griesa to find the nation in contempt of court and fine it $50,000 for seeking to evade legal rulings that require Argentina to pay them in full if it also services its restructured debt.

“Argentina has blatantly and repeatedly violated the court’s orders, making it abundantly clear that it has no respect for those orders, the court or the US judicial system,” the holdout creditors, led by hedge fund NML Capital, a subsidiary of billionaire investor Paul Singer’s Elliott Management, said in a Manhattan court filing on Wednesday.

Argentina was forced into default on its performing debt on July 30 after BNY Mellon, complying with US court orders, refused to pass on to bondholders a $539m payment. This week, Argentina took out full page adverts in the Financial Times and Washington Post asking BNY Mellon to resign as trustee, saying it was no longer “eligible”.

According to people familiar with Buenos Aires’ strategy, Argentina may replace BNY Mellon and turn instead to Nación Fideicomisos, a fiduciary agent affiliated with Grupo Nación, the country’s largest state bank. The almost $200M deposit is expected ahead of a September 30 payment deadline. Officials at Fideicomisos were not available for comment.

Argentina’s plan to switch trustees “won’t work,” warned Alejo Costa, head of strategy at Puente, an investment bank in Buenos Aires. “The way things are right now, this is just going to work as an escrow account, not as a payment.”

One problem Mr Costa identified is that it will not be possible for Fideicomisos to distribute the funds as it will be unable to identify the bondholders without the co-operation of BNY Mellon. Argentina’s central bank last month revoked BNY Mellon’s authorisation to operate an office in the country.

“BNY Mellon remains eligible to serve as Trustee,” the bank said in a statement. The bank “will continue to comply with binding court orders that govern its actions as Trustee in this matter.”

Separately, Buenos Aires is also threatening Citigroup’s Argentina branch with civil and criminal liability if it fails to make payments on another group of dollar-denominated bonds, worth about $8.4bn.

Citigroup has requested Judge Griesa to allow it to proceed with the payments on the local law debt, also due on September 30. A hearing on the matter is scheduled for September 26. Judge Griesa has also set September 29 for a court hearing on the holdout creditors’ request to declare Argentina in contempt of court.

Regardless of the outcomes, analysts say the tit-for-tat dispute over the payment mechanisms does little to help the country solve its broader economic challenges, such as a recession and rising inflation.

“Ultimately, all the back and forth with these bonds has become a big distraction,” said Gabriel Torres, a senior Latin America sovereign analyst for Moody’s. “Argentina’s economy has bigger problems to address.”

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