Do You Really Think Argentina Will Make a Deal With the ‘Vultures’?

Argentina's Finance Minister Axel Kicillof

Photographer: Don Emmert/AFP via Getty Images

Argentina’s Finance Minister Axel Kicillof

Argentina’s clash with Paul Singer’s hedge fund has come to what looks like a final grand battle, and it doesn’t look pretty. Argentina deposited $539 million in interest to pay investors — interest that the country has been told by a U.S. court it can’t pay unless Argentina pays Singer’s claims at the same time. Now BNY Mellon, the bank that handles those payments, has been ordered to return the money to Argentina. Meanwhile, as Bloomberg’s Bob Van Voris and Katia Porzecanski reported, Argentina says it’s fulfilled its obligations and the money now belongs to bondholders.

The idea here is that by making the payment due by June 30 Argentina avoids an imminent technical default. Even Argentina doesn’t think this is likely to work.

The mystery here is why the holders of Argentina’s restructured bonds, now trading at about 85 cents on the dollar, still seem to be optimistic that they’ll get paid. In the Market Now newsletter earlier this week, I wondered why Argentina’s restructured bonds went up after Singer’s court victory. It seemed to me that if Argentina had to pay Singer, it was actually less likely to be able to meet its other obligations.

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That analysis wasn’t really right. It wasn’t Singer’s victory that sent up Argentina bond prices, but, as Bloomberg’s Katia Porzecanski and Daniel Cancel explained, the prospect of a negotiated resolution. Investors in those bonds may think that, having exhausted all the other options, Argentina will finally settle with Singer and remove the uncertainty over all its debt.

This may be the rational thing to do. It probably looks that way from where bondholders sit. Except: Argentina’s president, Cristina Fernandez de Kirchner, has spent two years attacking Singer as a vulture and painting any compromise as an assault on Argentine sovereignty. To make a deal now is to nullify all that. One banker told Van Voris and Porzecanski that it’s not clear why Argentina is “wasting precious time.” Indeed it’s not, if you think Argentina expects to come to a deal with Singer.

Call that a really big “if.” It’s tempting for bondholders, in comfortable New York offices, to assume that somehow all this has to get resolved in a rational way. Alas, this kind of standoff rarely comes to a mutually beneficial ending.

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