Argentina gloats after massive bond sale

Argentina's finance minister thumbed his nose at US hedge fund creditors Wednesday after the country announced it raised $1.4 billion in a bond sale, $900 million more than expected.

Buenos Aires offered the local-law debt in a direct sale, not through underwriters, to get round a US court ruling that has blocked its access to global capital markets.

"This operation demonstrated that it is not necessary to mortgage the country's future by paying the vulture funds in order to obtain dollar financing," tweeted minister Axel Kicillof.

"The analysts said that 'the market' required us to pay $1.8 billion to the vultures," he said. "Nevertheless, the market gave a clear signal to the contrary: it is not afraid of the vultures."

The debt sale was nearly triple the $500 million in nine year, 8.75 percent BONAR bonds that the government offered late Sunday with a 24 hour deadline.

The finance ministry said it received offers for nearly $1.9 billion, and the average yield on the bonds came in at 8.96 percent.

The sale came despite the efforts of two large New York hedge funds, NML Capital and Aurelius Capital Management, and a handful of smaller "holdout" investors, to block Argentina's avenues to capital markets until it pays them the full value of long-defaulted bonds that they hold.

The holdouts were part of a small minority of bondholders that did not take part in the restructuring of $100 billion in debt the country defaulted on in 2001.
Buenos Aires has insisted that it does not have to pay their claims as they refused to join the 93 percent of creditors in the 2005 and 2010 restructuring.

But US district court judge Thomas Griesa has repeatedly backed the holdout claims for full payment, ruling that Buenos Aires cannot make payments on the restructured debt until it pays them first.

Under the original bond contracts Griesa ruled the holdouts had "pari passu" or equal payment rights, even if they bought the bonds at deep discounts around the time of the default.

Argentina has sought to pay holders of restructured bonds, only to see Griesa order the custodian banks involved to not process the payments, even on US dollar debt issued under Argentina law.

NML Capital suggested Tuesday that it could again seek court support over the new bond issue.

"Argentina's latest attempt at a global offer should understand that it appears to have all the hallmarks of external indebtedness that is covered by our pari passu rights," said Robert Cohen, an attorney for NML Capital.

"We are closely scrutinizing this highly unusual transaction to determine what enforcement actions are appropriate."