Argentina's efforts to avoid a debt default could drag on for another year or more as it fights "holdout" bondholders to the bitter end in U.S. courts and simultaneously looks to side-step any final ruling ordering it to pay up.
President Cristina Fernandez is pursuing a raft of new appeals to keep a technical default at bay, even as she readies a voluntary debt swap to take effect when other options run out.
The government last week lost its appeal of a New York court order requiring it to pay $1.33 billion to hedge funds that refused to restructure bonds after Argentina's record $100 billion default in 2002.
Fernandez insists her government will not pay the holdouts, but defeat in the courts could also block payments to bondholders who took part in the 2005 and 2010 restructurings. That would trigger a technical default on some $28 billion of foreign debt.
Seeking to avoid that, Fernandez is now proposing a new swap of foreign debt for bonds payable in Buenos Aires that would protect bondholders who accept the exchange by moving them beyond the reach of U.S. law.
A senior government source told Reuters the debt swap would only be pursued if Argentina's court appeals are unsuccessful.
Even then, it would only take a handful of bondholders unwilling to accept Argentine capital controls, or unable to invest in assets outside New York, to leave some restructured bonds vulnerable to another default.
That would mean the second debt crisis in a little more than a decade for South America's third biggest economy, which is struggling with high inflation and a poor business climate caused by heavy trade and foreign exchange controls.
Economy Minister Hernan Lorenzino says the government is pursuing three avenues to keep its legal fight alive. These include asking the three-member panel of the 2nd U.S. Circuit Court of Appeals in New York to reconsider its own decision; appealing the ruling to the full 13-judge appeals court; or appealing Friday's decision to the U.S. Supreme Court.
"We are going ahead with all necessary appeals," Lorenzino told local television on Sunday.
Whether or not the appeals are successful, they are also aimed at extending the stay order that protects payments on restructured bonds. Daniel Kerner of the Eurasia Group political risk consulting firm says they could delay resolution of the case for between six and 15 months.
Argentina has already asked the U.S. Supreme Court to review the original decision on which the appeals court based its ruling, and the top court has yet to decide whether or not to hear that case.
But the latest ruling might give Argentina another chance to appeal to the Supreme Court. First, Argentina has nearly three weeks to ask for a rehearing from the same judges who rendered Friday's ruling, as well as a new hearing "en banc" before all 13 judges on the 2nd Circuit Court of Appeals.
Both requests face long odds, but a rejection of Argentina's "en banc" appeal would give the country 90 days to make a second appeal to the Supreme Court. That could push a final decision deep into 2014.
"The Supreme Court will take a month or two to request an opinion from the Solicitor General, which would take two to six months to give one. Then it's usually resolved within 60 days (whether to hear the case)," said attorney Marcelo Etchebarne, a partner with Cabanellas Etchebarne Kelly in New York.
The chances are slim of a hearing before the Supreme Court, which usually hears fewer than 100 of the roughly 10,000 cases in which it is petitioned each year.
Argentina has so far avoided a final reckoning thanks to the restraint shown by judges. The appeals court surprised some observers last week with a stay order delaying implementation of its decision pending review by the Supreme Court.
But it is unclear how much longer U.S. courts will tolerate the defiance of the South American nation that 2nd Circuit Judge Barrington Parker called a "uniquely recalcitrant debtor."
"Argentina's officials have publicly and repeatedly announced their intention to defy any rulings of this Court and the district court with which they disagree," Parker wrote in the decision rebuking the country on Friday.
The country's attempt to move its sovereign debt beyond the reach of U.S. law is just the kind of maneuver courts have specifically warned against, lawyers said, raising the risk that judges could reconsider their stay order.
Were the Supreme Court to eventually take up the case, it could demand that Argentina set aside some $1.5 billion in escrow to ensure it obeys an eventual ruling. President Fernandez has so far refused any commitment that could satisfy the demands of the holdout creditors she calls "vulture funds."
If the Supreme Court turns down the case or Argentina refuses its conditions for a hearing, the lower court's decision would oblige the country to pay holdout creditors in full when they make their next bond payment.
The ruling is a vindication for dissident bondholders led by Aurelius Capital Management and NML Capital Ltd., a unit of Paul Singer's Elliott Management Corp., which are demanding full payment. They have argued that Argentina cannot deny them their due while paying investors who agreed to restructurings.
But the 93 percent of bondholders who renegotiated debts after Argentina's 2002 default, accepting less than 30 cents on the dollar, now worry that the refusal to pay holdouts in the face of court orders could freeze payments on restructured bonds as well.
Argentina has promised to keep paying obligations on its restructured debt. Lorenzino said on Sunday that the country would continue paying holders of those bonds "on the same terms, in the same currency, over the same period."
"We're going to keep paying as we have until now, on the same terms," Lorenzino told a state news agency on Saturday, calling the previous day's appeals court ruling "an attempt to bring the country back to 2001."
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