Argentina says no exchange bondholders have agreed to debt swap

Argentina’s government acknowledged that no foreign holders of restructured bonds have agreed to swap their U.S.law debt for new notes governed by local jurisdiction.

President Cristina Fernandez’s government, in legislation enacted in September, had sought the bond swap as a way of skirting a U.S. court ruling preventing it from making scheduled payments to the exchange bondholders without first settling with a small group of holdout creditors.

Argentine Cabinet chief Jorge Capitanich made the announcement in a report to the lower house of Congress on Wednesday.

Argentina defaulted on roughly $100 billion in debt in December 2001 at the time the largest sovereign default in world history amid a financial meltdown and economic depression.

More than 92 percent of Argentina’s creditors accepted steep haircuts in 2005 and 2010 debt restructurings.

But a small group of holdouts that bought Argentine debt in the wake of the 2001 default have refused to accept the swaps and are continuing to seek 100 cents on the dollar for their bonds.

Among the holdout creditors are several U.S. hedge funds, led by Elliott Management Corp.’s NML Capital Ltd unit and Aurelius Capital Management, that sued Buenos Aires in the U.S. courts for full payment on bonds they bought at large discounts in 2002.

In 2012, Thomas Griesa, a U.S. federal judge in Manhattan, ordered Buenos Aires to pay the litigants more than $1.3 billion. Argentina’s appeal of the decision reached the U.S. Supreme Court in June, but the justices declined to hear the challenge.

As part of that 2012 judgment, Griesa issued an injunction based on a clause in the bonds that states that all bondholders must be treated equally that bars Argentina from paying the exchange bondholders before settling with the holdouts.

His decision prevents the trustee for the exchange bonds, Bank of New York Mellon, from processing payments that Argentina has made in the second half of this year to those creditors.

In the law enacted in September, Argentina tried to get around that injunction by replacing Bank of New York Mellon with Nacion Fideicomisos, a unit of stateowned Banco Nacion, as trustee.

Fernandez’s administration has refused to settle with the holdouts, saying full payment to the hedge funds would lead other holdout bondholders to demand the same, creating a potential liability of some $15 billion, equivalent to roughly half of Argentina’s foreignexchange reserves.

The origins of the debt problem go back to Argentina’s 19761983 military regime, which presided over a 465percent expansion in public indebtedness.