By María Elena Candia
The victories obtained by Argentina bond holdouts in U.S. courts this year, along with the upcoming president elections, gave Argentina's defaulted bonds -- unpaid since 2001 -- a boost, making them the debt securities with best performance among those issued by the Republic of Argentina.
While bonds weakened last month and now remain practically flat (but still at a good value), the untendered defaulted bonds hit a new high. According to data by the Seaport Group and Caracas Capital Markets, defaulted bond are already trading at $152, after breaking a previous record of $132.
"I think that the catalyst for the strong recovery of the untendered defaulted bonds has been a series of judicial rulings that have boosted creditor confidence regarding their demands and the likelihood that an agreement will be struck, even if that means waiting a long time before obtaining the payoff," said Michael Roche, an emerging market strategist at Seaport Group.
The bonds were worth $50 before the U.S. Supreme Court rejected an appeal from Argentina on June 16 of last year, but more than doubled their value in two months – they reached $125 in August – on expectations that Argentina would agree on the holdouts in order to avoid default.
Following Argentina's new default, bonds fell to levels close to $100 and traded at $120 by the end of last year, on hopes that Argentina would start negotiating with the holdouts after the expiry of the RUFO clause, reaching a fresh high of $132.
During the rally, said Roche, investors started to differentiate prices between the untendered bonds on the basis that the maturity date over time was more important than the principles of the New York law, when laying down a limitation period for filing a claim before the court. In the case of the New York law, this limitation period is six years.
For this reason, the dollar-denominated bonds with original maturity on or before 2008 were traded with a discount in relation to the bonds maturing after 2008 and this has not changed – they are currently trading at $140.
However, a key event was that a ruling of Judge Thomas P. Griesa did not differentiate any of the Argentine bonds in the claims of the many holders of the defaulted debt (aka "me-too") and he included them all, thus allaying concerns about the limitations.
Through the ruling, Griesa ordered Argentina to pay $5.4 billion to "me-too" creditors, extending the holdout debt up to $7 billion.
To Russ Dallen, managing partner of Caracas Capital Markets, the "me-too" ruling helped "solidify" the firm foundation of defaulted bonds, while the NML case is also applied to them. "This turned out as expected, although it was good that is put on paper," he added.
"Argentine untendered bonds are rising at a slow pace, in line with our expectations, as elections and the new year approach, depending on how the opposition is faring," said Dallen.
Although Mauricio Macri is behind Daniel Scioli in recent opinion polls, they're both locked in a tight presidential race, Dallen argued. Many analysts believe that Macri will do better once the other candidates are out of the electoral race and this becomes a two-horse election process for either a continuation of the Kirchner saga or a change of regime: "this is a powerful concept of a campaign -- change," concludes Dallen.
NML v Argentina - Decision Granting Summary Judgment to 'Me Too' Holdouts - 5 June 2015 by Latin American Herald Tribune
NML v Argentina - Total of 'Me Too' Cases - June 2015 by Latin American Herald Tribune
Cristina Fernandez de Kirchner - Statement of Personal Assets - 2 June 2015 by Latin American Herald Tribune