Don’t cry for me Argentina

Well at least they won yesterday’s World Cup match against Bosnia because today Argentina got some really bad news.

The United States Supreme Court has finally responded to Argentina’s request to have its case against hedge fund creditors heard and the verdict was an unquestionable, “No.”

“This is the end of the line for Argentina in the judicial appeal process. It has nowhere else to turn,” said Richard A. Samp is Chief Counsel of the Washington Legal Foundation.”It is true that Argentina is entitled any time in the next 25 days to ask the Supreme Court to rehear its petition. But because the Supreme Court never grants rehearing petitions, there is no reason to think that the Second Circuit will wait to lift its stay until after the futile rehearing procedure has been exercised and resolved.”

Business Insider reports:

Argentina was asking the Court for two things that came from one specific disaster — it’s 2001/2002 default. At that time, a bunch of hedge funds bought Argentine debt and a group of them — led by Elliott Management’s Paul Singer — refused to take a haircut on that debt when Argentina refinanced in 2005 and 2010. Argentina refused to pay, so the holdouts chased the country’s money around the world, even commandeering an Argentina war vessel in Ghana.

Argentina was asking the Supreme Court and perhaps reverse a decision made by a lower Court that it pay every single cent it owes. It was also asking the Court to stop the holdouts from discovering its money all over the world, arguing that the chase was a violation of the Foreign Sovereign Immunities Act.

But no. Denied and denied.

NML, the spokesman for the holdouts, was quick to revel in their victory,

“America’s highest Court has spoken. Now it is time for Argentina to honor its commitments to its creditors, which would benefit both Argentina’s economy and its international standing.”

So what’s next?  The straight out “no” means that Argentina will default on its debt to creditors or negotiate. Making matters worse, the lower Court that mandated Argentina pay will likely lift its stay on payment in the next few days, which puts Argentina in a “make a payment” or default scenario.  Such options almost definitely ensure Argentina will decide to sit at the negotiation table with NML and find a way to avert disaster.

And it can negotiate now, because according to its bond prospectus it simply could not voluntarily negotiate with the holdouts until 2015. Basically, it had to have no other option.

While default may not be coming, nothing has been resolved yet, and that means chaos. Major Argentine stocks Edenor and YPF fell 13% and 17% respecitvely. Argentine bond yield spread over U.S. Treasuries +60bps to 7.97pps showing that investors see the assets as more risky.

Let’s hope Messi and team continue to win.


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