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Argentina and the Swap Puzzle

posted by Anna Gelpern

President Cristina Fernandez de Kirchner has proposed a law authorizing the executive to reroute payments on the restructured bonds out of New York, and to offer all bondholders local-law bonds on 2010 exchange terms. All the buzz has been about the swap. But there is no swap on the table, no capacity to execute a swap, and no more details about the swap than there have been in the press for months. We have even had a hearing about this swap (no, Judge Griesa did not like the idea--though he will have more to say soon, I am sure).

Even if Argentina put a real proposal on the table and figured out a way to execute a swap without the help of any of the mainstream intermediaries worried about New York court orders, any new FX bonds issued in that swap would likely be covered by the same injunction that threatens Argentine-law FX bonds paid through Citi, pending appeal. (Would a swap announcement help or hurt the appeal? Hmmm....) In other words, miles to go from here to there, and nothing to act on for the bondholders just now.

On the other hand, Argentina has the capacity on its own to deposit the next bond payment at Banco Nacion. Sure, this would violate the various court orders and the indenture, but if you are a bondholder and want to get paid, you might just have a real choice come September. I still think few people will show up, for many of the same reasons that would gum up a swap--but there is a high probability of an action-forcing event here.

More to the point, any attempt at firing Bank of New York Mellon and unilateral action in contempt of court would present a real problem for BNYM, the various clearing houses, paying agents and advisers involved. I suspect more lawsuits and resignations will come before any swap is launched.

... which makes me think, again, that this was more about the 40-page retelling of the history and the politics of it all. Escalation is the message.


I can't understand why the Argentines want to pay in dollars, which would likely involve banks that are subject to Judge Griesa's injunctive powers. It would make more sense to pay in a dollar value of Euro or yen. The banks would more likely be insulated from Judge Griesa's wrath. The recipient, if it wants, could then swap this into dollars.

all technicalities aside
article 2nd of the proposed law
explicitly declares judge griesa's orders
to be "illegitimate and illegal" therefore contemptible

argentina's government and congress are about
to turn what was a commercial trial
into a sovereign dispute
what is next ???

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