The WSJ reports,"Investor confidence that Argentina would reach a deal with holdout creditors is falling as a default deadline draws closer, sparking a selloff in the country's stocks and bonds.
Argentina and its holdout creditors have until Wednesday to agree to a deal to avert what would be a second default in 13 years. Analysts and investors in the past few weeks have been relatively upbeat on the prospects for an agreement, expecting Argentina to agree to pay the holdouts at the last minute.
But those prospects seemed to dim following the news that Monday would come and go without further talks. On Monday, the court-appointed mediator said Argentina had arranged for a meeting on Tuesday, but wouldn't meet face to face with the holdouts.
"The market has been optimistic, expecting that Argentina will do what they think Argentina should do" and come to an agreement, said Siobhan Morden, head of Latin America strategy at Jefferies LLC. "The market is starting to crack. I think we're still heading lower."
Argentina's dollar bonds due 2033 fell as low as 81.375 cents on the dollar, a five-week low and down from as high as 90 cents on the dollar as recently as Thursday. They later rebounded to about 84 cents in very thin, choppy trading, traders said. The bonds closed at about 85.5 cents late Friday.
Ms. Morden said 57% of investors polled by Jefferies now expect an Argentine default. Should that happen, those investors expect Argentina's benchmark bonds to fall to an average of 68 cents, she said.
The price on Argentine credit-default swaps, contracts designed to pay out when a country defaults on its debt, on Monday implied an 80% chance of default in the next five years, according to research firm Capital Economics.
Argentina's benchmark Merval stock index hit a one-month low before trimming its losses to end the day down 1%. The index is down 11.3% in the last 10 trading sessions.
U.S. District Judge Thomas Griesa blocked interest payments for $539 million due on Argentina's 2033 bonds in June after the country deposited the money. Judge Griesa has ruled that Argentina must pay hedge funds led by Elliott Management Corp. affiliate NML Capital Ltd. and Aurelius Capital Management LP when it pays investors who own bonds the country issued after its 2001 default.
Argentina has until Wednesday to get that money to bondholders or run the risk of being declared in default.
Argentine officials met twice last week with their court-appointed mediator, Daniel Pollack, but declined to hold face-to-face talks with representatives for the hedge funds, which are suing to collect on debt Argentina stopped paying 13 years ago.
Argentina's finance secretary and a set of other officials are set to travel to New York on Monday and meet with Mr. Pollack at 11 a.m. on Tuesday.
"I again urged direct, face-to-face conversations with the bondholders," Mr. Pollack said about the call with Argentina's representatives on Monday. "But that will not happen tomorrow."
Jim Craige, a portfolio manager with Stone Harbor Investment Partners LP in New York, said it was looking less likely that Argentina would reach a deal, particularly after the country's negotiators flew back to Buenos Aires on Friday, to return to New York late Monday.
"They could have gotten on an airplane earlier," Mr. Craige said. "They should have never left [Friday], and probably should be here for an early Monday meeting if they were really interested in getting this done. In order to negotiate, you have to actually sit down at the table and hammer out a deal."
Mr. Craige said his firm owned some Argentine bonds governed by local law, and not subject to the U.S. court ruling, but that he'd consider selling those if conditions in the country worsen after a potential default.
The Argentine government has argued that it can't default because it deposited the money, which is now the property of bondholders. The government has asked the judge to suspend his ruling to give it more time to negotiate".
Argentina's long-running legal battle with hedge funds stems from its default on some $100 billion in public debt in 2001 amid a deep economic crisis. The country offered holders of the defaulted bonds new securities valued at about 33 cents on the dollar in 2005 and 2010. Between the two swaps, investors agreed to exchange almost 93% of defaulted bonds eligible for restructuring.
However, the hedge funds decided not to tender their bonds and instead sued for full repayment. Those so-called holdout creditors have won about $1.6 billion after years of litigation in U.S. courts.
Argentina has largely run out of legal options after the U.S. Supreme Court on June 16declined to hear its appeal in the case, leaving in place Judge Griesa's decision that Argentina must treat its different groups of creditors equally".
