Argentina, 'vulture' funds battle as debt deadline arrives

Argentina and hedge fund creditors it calls "vultures" blasted each other as the country was expected to miss a deadline for a key debt payment Monday.
US District Judge Thomas Griesa on Friday barred the Bank of New York Mellon from transferring $539 million in Argentine funds to the country's main creditors, the so-called exchange bondholders, unless Argentina also pays the hedge funds meant the country would likely be in default on Monday.
But a one-month payment grace period gives Buenos Aires until the end of July to negotiate a deal with both groups of lenders before being called into default on its debt for the second time in 13 years.
Argentina insisted that it had fulfilled its obligations last week, when it deposited the funds in the BNY Mellon account.
President Cristina Kirchner's cabinet chief Jorge Capitanich said the country could not be considered in default if the bank did not forward the money to the exchange bondholders, creditors who joined the 2005 and 2010 restructurings of the country's $100 billion in defaulted debt.
"When a country assumes financial obligations, a judge cannot come along and alter the contractual relation between two parties," Capitanich said.
"The funds were deposited as they should be for transfer to the creditors who voluntarily took part in the debt restructuring."
Buenos Aires said it was sending an Economy Ministry delegation to meet on July 7 with Daniel Pollack, the case coordinator picked by Griesa.
But on Friday, Griesa ordered the bank to withhold the transfer, unless Argentina simultaneously pays $1.3 billion to the hedge funds that held out the restructurings and sued Buenos Aires for full payment on the bonds.
Griesa, whose original 2012 ruling in support of hedge funds NML Capital and Aurelius Management was supported two weeks ago by the US Supreme Court, pressed Buenos Aires on Friday to negotiate a payment deal with the two funds.
Argentina has argued that paying the full worth of the bonds held by the hedge funds is unfair to the 92 percent of creditors who joined the restructuring taking a huge 70 percent writeoff.
Secondly, the country says being forced to pay the "holdouts" would overwhelm its weak finances and force it into default.
- 'No negotiations underway' -
It was unclear whether Buenos Aires was willing to talk with the hedge funds.
NML said that, despite promises and Griesa's prodding, and the naming of a special representative last week to oversee negotiations, Argentina has not joined talks.
"NML is at the table, ready to talk, but Argentina has refused to negotiate any aspect of this dispute," said Jay Newman, senior portfolio manager at NML parent Elliott Management.
"There are no negotiations underway, there have been no negotiations and Argentina refuses to commit to negotiations in the future. Argentina's government has chosen to put the country on the brink of default."
Buenos Aires accuses the holdout hedge funds of buying the bonds at steep discounts when the country defaulted in 2001, and then refusing to join the restructuring in order to litigate the issue to try to recover 100 percent of their value.
In an official statement published Sunday in US newspapers, Argentina said "the judge's bias in favor of the vulture funds" is aimed at pushing the country into default.
It said Griesa's ruling is "merely a sophisticated way of trying to bring us down to our knees before global usurers."
Even so, many expect Argentina will have to reach a deal on paying the hedge funds by the end of July if it wants to recover any status in global financial markets.
"If, within a month, there is no agreement with the holdouts, the situation will become extremely difficult," said Daniel Marx, an executive at financial consultants Quantum Finanzas in Argentina.
The Washington-based Organization of American States agreed to discuss the Argentine debt issue on Wednesday in a meting for the region's foreign ministers.
Argentina's representative at the OAS called it an issue of "urgent and common interest."
"This is an issue that transcends the financial aspects and has global implications and consequences," he said.