Argentina faces greater debt risks: analysts

Argentina's attempt to fight a US court ruling in favor of bondholders seeking $1.3 billion may backfire and make the country's attempt to recover from its 2001 debt default even harder, analysts said Thursday.

Lawyers for Argentina clashed Wednesday in a US appeals court in New York with holdout bondholders who want full payment and have refused to accept a restructuring deal struck with 92 percent of other creditors.

Argentina says it fears that having to pay the $1.3 billion would trigger a new default, describing the holdouts as "vultures" with no regard for the bigger picture.

But analysts believe the 2nd US Circuit Court of Appeals will confirm the earlier ruling by District court Judge Thomas Griesa that insisted Argentina cough up the money.

"Our overall impression was that the outlook for resolution of the litigation by holdouts is negative for Argentina," said a Credit Suisse report by research analysts Casey Reckman and Daniel Chodos.

"We would not be surprised to see the appeals court panel affirm Judge Griesa's 21 November order."

Gabriel Torres, an analyst at Moody's rating agency, was more cautious, saying, "We're not issuing an analysis of the chances of how the legal issue will turn out one way or the other."

But he added that "there is a sense that this could be negative for Argentina."

Argentina defaulted on some $100 billion in debt in 2001, and has since restructured its debt twice, covering around 75 percent of the nominal value of the bonds.

But NML Capital Ltd and Aurelius Capital Management are demanding 100 percent repayment, plus interest.

With the US courts seemingly pushing for that to happen -- a hearing before the US Supreme Court would be the last chance to reverse the appeals court decision -- Argentina might soon need to consider other avenues, analysts said.

Argentina's next payment to the restructured debt holders is scheduled for late March through the Bank of New York, but the bank could be obliged by the court to share out the funds to all bondholders, including the holdouts, thereby sinking the restructured deal and prompting a new Argentine default.

"There is no doubt that if this goes against Argentina, if this forces the Bank of New York to act..., in this case there will be a default," Torres said.

According to Torres, the best outcome would be if Argentina could find a way to pay the restructured debts through another channel not liable to seizure in New York.

The extent of that default, he said, "will depend on Argentina."

Martin Redrado, a former Argentine central bank chief, said it would be "very difficult" to prevent a ruling in favor of the holdouts and that he disapproved of the strategy of "defying" the US court.

"Argentina lost an opportunity yesterday. We concentrated more on rhetoric than substance. The substance would have meant emphasizing the implications."

"What we have to focus on is whether the (restructured) funds Argentina pays can be seized when they arrive in New York or not. That is the key for knowing the impact it will have," he said.