A last minute deal from a private Argentina bank may avert an Argentine government default on its bonds, if the holdout creditors accept their less than desired terms.
Other countries may follow Argentina’s default lead
In an unusual last minute drama twist, a former Argentine Economy Minister, Sebastian Palla, is reported as offering to purchase the holdout hedge fund’s positions on behalf of a consortium of Argentine institutional investors, in a bid to avert a default and potentially a nasty international incident. As previously reported in ValueWalk, Argentina defaulting and then receiving financing from China and sources alternative to the interests of the US and other western allies could establish a new benchmark. As previously reported in ValueWalk, other countries who are at or near default conditions may follow Argentina’s default lead.
The unreported aspect of this story is not only the emergence of a new force to challenge western economic dominance, but also the credit default insurance time bomb that could be triggered. As previously reported in ValueWalk, the derivatives written by large US banking interests could be triggered, exposing a vast overleveraging problem on the part of the banks that has been reported in ValueWalk. Widespread defaults could trigger massive payouts the banks couldn’t afford – forcing a bailout and the US taxpayer to be tapped to come to the rescue again.
In other words, the incentives are behind cooler heads to prevail and a logical solution is worked out that pulls people back from the “nuclear option” of default.
Palla will deliver a proposal to purchase defaulted bonds
Citing a bank source, the Bloomberg Businessweek report says Palla will deliver a proposal from members of the Adeba local banking association to purchase defaulted bonds from the “hold-out investors.” If agreement is reached it would mean Argentina can continue paying interest on its restructured bonds as it had previously agreed.
‘The expectation is that Argentina will reach a resolution today,’’ Patrick Esteruelas, a senior analyst at Emso Partners Ltd., said in a telephone interview with Bloomberg. “Kicillof wouldn’t have traveled to New York, taking the unprecedented step to meet face-to-face with the holdouts, and spend all that political capital, to go back to Buenos Aires empty-handed.”
The New York Times, on the other hand, is expressing skepticism. In a report from yesterday headlined Bond Default by Argentina Appears Likely, the article said unless a last minute deal is executed, Argentina could default today.
ValueWalk has been reporting that Argentina will likely not engage in negotiations and only accept an offer that does not change its status quo too dramatically.
That last minute deal could now be in the hands of the hedge fund holdouts. Will they accept an offer that is likely less than they hoped for?
The world waits for the answer.