MIAMI -- Clearing agent Clearstream has closed a trading bridge with Euroclear on five series of US dollar-denominated Argentine bonds issued under local law, the company said in a note to the market.
"Clearstream Banking will not execute domestic receipt instructions or any instructions with Euroclear Bank counterparties for the following securities:
- ISIN Common Code Security Name/Description
- ARARGE03E097 020948850 Republic of Argentina USD 2.5% 2038
- ARARGE03E113 020949031 Republic of Argentina USD 8.28% 2033
- ARARGE03G704 050542505 Republic of Argentina USD 2.5% 2038
- ARARGE03G688 050542661 Republic of Argentina USD 5.77% 2033
- ARARGE03E154 020978961 Republic of Argentina USD FRN GDP 2035
"Customers of Clearstream Banking should note that any instructions to receive the above securities from the Argentinian market or any instructions to receive from or deliver such codes to a Euroclear Bank counterparty will be rejected with immediate effect," the company said in a statement. "Delivery instructions to the domestic market and all instruction types between Clearstream Banking’s customers are still allowed."
Clearstream Banking refers to Clearstream Banking AG of Germany and Clearstream Banking S.A. of Luxembourg. A wholly owned subsidiary of Deutsche Börse, they act as the depository and train tracks to ensure that cash and securities are exchanged simultaneously between trading parties. They manage, safekeep and administer over 300,000 types of bonds, equities and investment funds and maintain relationships with around 2,500 bank customers in over 110 countries, and handle over 250,000 transactions daily.
Clearstream International was formed in January 2000 through the merger of Cedel International and Deutsche Börse Clearing.
Earlier this week, a U.S. federal judge authorized the Argentine unit of Citigroup Inc. to process two interest payments to holders of restructured debt, a move that comes amid a longstanding legal battle pitting President Cristina Fernandez’s administration against U.S.-based holdout hedge funds.
In a statement, Citi Argentina said U.S. District Judge Thomas Griesa in New York issued an order that, among other things, will not prevent it from “fulfilling its obligation to process payments related to the interest on dollar-denominated Argentine bonds that are governed by Argentine law.”
But in subsequent hearings, he also restated that Euroclear would not be allowed to process the payments, even if Citibank was.
Those payments are due on March 31 and June 30.
The deal was reached as the result of negotiations between the pari passu plaintiffs and Citibank. Once the parties reached an agreement, they submitted the agreement to Judge Griesa, who approved it.
The judge on Friday also granted the bank’s request to exit its Argentine bond custody business, the statement added, noting that that business represents just 2 percent of Citi Argentina’s revenues.
Griesa’s court rulings are part of a longstanding legal battle that stems from a massive Argentine debt default in 2001 amid a financial meltdown and economic depression.
U.S. hedge funds, including NML Capital Ltd., a unit of Paul Singer’s Elliott Management Corp., bought a small percentage of defaulted Argentine sovereign bonds in the wake of the nation’s 2001 economic collapse and, unlike 93% of creditors, refused to agree to debt restructurings in 2005 and 2010 that wiped out 70% of the amount due.
Griesa ruled in favor of the litigating hedge funds in 2012 in a case that Argentina unsuccessfully repeatedly appealed all the way to the U.S. Supreme Court. The courts upheld the bond contract and ordered Argentina to pay the money it owed, some $1.3 billion plus interest.
As part of that ruling, the Courts also barred Argentina from paying the exchange bondholders without simultaneously paying the holdouts. That ruling also prevented custodian banks from processing Argentina’s attempts to pay.
Because Buenos Aires has refused to settle with what it terms “vulture funds,” it has been unable to service its debt to its remaining creditors, putting the country into default again. The country remains unable to access international capital markets because of its poor credit rating and the court orders.
Griesa’s latest ruling could ease tensions between Buenos Aires and Citi Argentina, which had been threatened with criminal and civil penalties for not processing the debt payments.
"Argentina's creditors have proven that they can negotiate," says American Task Force Argentina, a bondholder lobbying organization. "It is now long-past time for Argentina to do the same by coming to the table to settle this decade-long dispute."
NML v Argentina - Citibank - Citibank Allowed to Pay Coupons 20 March 2015 by Latin American Herald Tribune
NML v Argentina - Citibank - Citibank Exiting Argentina Custody Business - 17 March 2015 by Latin American Herald Tribune NML v Argentina - Citibank - Griesa Opinion Denying Citibank Argentina Request to Pay - 12 March 2015
by Latin American Herald Tribune