NEW YORK, Sept 23 (IFR) - Argentina is expected to deliver a US$200m coupon payment in the next week on its restructured Par bonds, but frustrated investors still have little chance of getting their hands on the money.
After rejecting Bank of New York Mellon as trustee amid a legal battle with holdout creditors, Argentina will now turn to the local affiliated fiduciary of Banco Nacion instead.
The sovereign is expected to deliver the coupon payment to the domestic bank before the September 30 due date, but even bondholders willing to go to Buenos Aires for the cash are likely to come up empty.
“As a practical matter, the chances of the payment reaching the beneficial bondholders seem very remote,” said Henry Weisburg, a partner at law firm Shearman & Sterling.
“I don’t even know whether any mechanism is in place for bondholders to prove their interest and collect their payment at Banco Nacion.”
The coupon payment is intended to show that Argentina has the ability to continue servicing its international debt despite a default in July that grew out of the legal battle.
But observers say it will do little to resolve the fight in the US courts or bring the sovereign any closer to emerging from its debt woes.
“It might be a public relations victory, but it doesn’t change the status of the agreement itself,” one lawyer said.
Using Banco Nacion as the conduit for payments violates the 2005 trust indenture which says that trustee has to have a place of business in New York, which the fiduciary does not, he said.
“If some bondholders agree to take the money outside of provisions of the agreement, Argentina could argue it has paid those holders what it owes,” the lawyer said.
“But it is not payment under the agreement.”
If delivered to an institution that is not formally recognized as trustee, the payments could also be attached by the US courts.
“You could see a battle over the reach of New York’s attachment law, as its interpretation is a bit unclear. But if you get over these hurdles, a case could be made that payments deposited at Banco Nacion could be attached,” said Shearman & Sterling’s Weisburg.
Investors holding Argentina restructured debt have largely resigned themselves to the idea of missing coupon payments at least for the rest of this year, hoping that the expiration of the so-called RUFO clause in 2015 could mark a change in strategy for Argentina.
The sovereign repeatedly cited the clause as reason for refusing to make whole the dissident bondholders that have taken it to court.
“We are hunkering down for three months. Then we will see what the government is willing to do,” said Tom Mullen, a partner at TWM Capital, which owns newly-defaulted Argentine debt.
“We believe that RUFO is the primary obstacle for a solution. Once that expires, the rhetoric should subside, the holdout issue can be addressed, and all the frozen bond payments can be paid.”
In a notice published Monday, Argentina called on BNY Mellon to resign as trustee on the country’s restructured bonds, which were issued as part of its 2005 and 2010 restructurings.
The government and the bank have been at loggerheads ever since BNY Mellon refused to transfer a US$539m coupon payment to holders of Argentina’s Discount bonds pursuant to a US court order that required simultaneous payment to holdout investors.
The move officially pushed the country into default on July 30, marking its second default in just 13 years.
For now, BNY Mellon has yet to relinquish its role as Argentina’s payment agent.
“BNY Mellon remains eligible to serve as trustee for the exchange bonds under the terms of the indenture, and will continue to comply with binding court orders that govern its actions as trustee in this matter,” a bank spokesman said Monday. (Reporting by Davide Scigliuzzo; Editing by Paul Kilby and Marc Carnegie)