The market is not liking Argentina’s offer to holdout creditors.

News that the country has offered to pay holdouts only on the same terms as two previous debt swaps pushed yields on Argentina’s restructured note due 2033 up to a fresh high on Monday.

Recapping quickly – Argentina was last year ordered by New York Judge Thomas Griesa to pay $1.33bn to creditors led by Elliott, a US fund, who have gone unpaid since the country’s 2001 default on nearly $100bn. And it gave its order teeth by ordering payment institutions (notably the Bank of New York, the trustee of bonds issued in swaps in 2005 and 2010 in which more than 92 per cent of defaulted debt was restructured) not to process payments on that exchange debt unless the holdouts were paid.

Why? This was his resolution of Argentina’s breach of the pari passu or equal treatment clause in the original bonds. The judge’s order was put on ice pending Argentina’s appeal. But the fear that Argentina would pay no one, if push came to shove, raised fears of a fresh default, plus wider concerns about the viability of future restructurings.

Fast forward: the Second Circuit Court of Appeals heard all the parties in the dispute at a lengthy hearing on February 27 and then said on March 1 that Argentina had to spell out in writing what its offer to holdouts was, exactly.

Which brings us to the Good Friday filing.

As the FT’s Jude Webber explained:

In its filing late Friday, Argentina said it could offer a par bond, aimed at retail holdouts, which would pay out in full but not until 2038. For institutional investors, it offered a discount bond, payable in 2033 but with an estimated 66 per cent writedown or haircut.

Both options came with warrants linked to GDP growth, and past-due interest would be paid in cash in the par option and via a bond due in 2017 for the discount offer.

But Argentina’s proposal, which is essentially the same package that has already been turned down twice before by holdouts, has heightened concerns that its offer will be rejected by the appeals court judges, increasing default risks.

While Argentina said on Monday it would seek to reroute payment on its US restructured debt in order to keep payments going to its restructured bondholders and avoid a technical default, the market wasn’t so convinced.

Yields on the country’s restructured note due 2033 jumped 53bps to 16.56 per cent, a new high.

So rightly or wrongly, the market’s panicking.

For more on Friday’s filing, check out Joseph’s comprehensive two-part analysis over at Alphaville – here and here.

Related reading:
Argentina hints at payment rerouting, FT
Argentina sticks to its guns over holdout creditor payments, FT
Pari Passu saga, FT Alphaville
Argentina holdouts saga on beyondbrics
Argentine sovereign debt – resources via Shearman & Sterling

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