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Argentine Defaulted Bonds Rise as Fernandez Will Resume Talks
Bloomberg
June 30, 2009

By Drew Benson

June 30 (Bloomberg) -- Argentina's defaulted bonds rose as President Cristina Fernandez de Kirchner said yesterday the government will resume talks to restructure some of the $20 billion of debt that creditors held out of a 2005 settlement "once markets are calmer."

London-based Exotix Ltd., a brokerage that specializes in distressed securities, is quoting the defaulted dollar debt at 17.5 cents on the dollar, up from 17 cents before midterm congressional elections on June 28 that resulted in a defeat for Fernandez's ruling coalition and matching a six-month high reached three weeks ago.

Fernandez said yesterday that negotiations with bondholders were derailed by the global economic crisis and that any accord with creditors may be limited by Argentine law. She said in September the government was considering a debt restructuring proposal. Nestor Kirchner, Fernandez's husband and predecessor, pushed through legislation in 2005 that blocks the government from making a second offer.

"In the coming months, the government may deal with issues that it had put on a back burner," Credit Suisse Group AG economist Carola Sandy wrote in a report from New York. "If market conditions improve and the government and bondholders reach an accord, congress will likely support it."

The new congress takes office in December.

Argentina paid about 30 cents in the restructuring in 2005, four years after a $95 billion debt default that was the biggest ever by a sovereign.

Lawsuits from some investors who rejected the 2005 debt restructuring have prevented Argentina from selling debt abroad to meet financing needs. The administration has instead borrowed from government agencies.

'Challenging'

Argentina said in yesterday's official gazette that it will receive a 7.3 billion peso ($1.9 billion) loan this year from state-run Banco Nacion. It also said it will reopen or directly place up to 4.9 billion pesos worth of bonds due in 2014 and 2016.

The loan and local bond sale "reinforce our view that although the 2009-2011 financing plan is challenging it is doable given that the government can tap surplus funds among several government agencies and other local entities," Goldman Sachs Group Inc. analyst Alberto Ramos wrote in a report.

The government's ability to finance itself by borrowing from state agencies may lead Fernandez to prolong negotiations with the defaulted debt holders, said Stuart Culverhouse, an economist in London with Exotix.

"Now that they have a reasonable financing position, there is less imperative to do it this year," Culverhouse said.

To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net.

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