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NEW YORK, May 15 (IFR) - Argentina and its defiant holdout creditors crossed swords again this week, as the latter tried to sabotage the sovereign's successful tap last month of some local law bonds.
NML and Aurelius Capital, two funds at the centre of a long battle with Argentina over its previous debt restructurings, filed a motion in the US courts to broaden a 2012 injunction.
That ruling, which banned Argentina from paying debt-holders that accepted the restructuring without making whole those that didn't, effectively pushed it into its second default in 13 years.
Now, the holdouts want Judge Thomas Griesa to extend that to the local law Bonar 8.75% 2024s, which Argentina tapped last month for US$1.4bn despite the holdouts' strong objections.
"Holdouts will attempt to get Judge Griesa to declare that the last sale of Bonar 2024s was a concealed international distribution, which would mean it is external indebtedness," said Jorge Piedrahita, CEO of brokerage Torino Capital.
"It is highly unlikely that the holdouts will be able to prove such a thing," he wrote in a note to clients. "And even if they did, it has to go through the appeal process."
Priced four years after the second restructuring, the 2024s were not part of that debt exchange and thus were never covered by Griesa's original injunction.
But with the mess around Argentina's debt showing no sign of resolution - and an election coming in October to replace President Cristina Kirchner - the latest legal challenge might dissuade the sovereign from trying to sell more debt.
"I don't think the market wants any more issuance in the remaining months of the Kirchner administration," said Siobhan Morden, head of Latin America strategy at Jefferies. "If there is a legal threat that will cause them to hesitate (to issue), that will provide some natural stability," she said.
The holdouts merely asked the judge to amend their own original complaint that led to the injunction, rather than asking him to change the ruling itself. That subtle legal and tactical difference is seen by some observers as being intended to leave as much flexibility as possible to Griesa.
If Griesa does rule that the 2024s are external debt, the country will have an even tougher mountain to climb, as it already has a US$5.7bn payment due in October on its Boden 2015s.
"The train is driven by the plaintiffs and they would presumably want to move as quickly as possible," said Marco Schnabl, a partner at law firm Skadden Arps.
For now, many observers feel, the motion will have limited short-term impact - and neither the 2015s nor the 2024s moved much after it was filed. Overall, the Bonar 2024s have been moving downward since the tap, however, from 108.45 in mid-April to around 98.25 on Thursday.
Yet with the ongoing legal battle aimed at keeping a lid on further supply, prices should - other things being equal - hold up relatively steadily for the moment.
"The more (Argentina) tries to issue in local law, the more they are going to face legal challenges," Morden said.
A version of this story appears in the May 16 issue of IFR Magazine, a Thomson Reuters publication
Reporting by Davide Scigliuzzo and Paul Kilby; Editing by Marc Carnegie and Matthew Davies