Consequences:<\/p>\nHad Argentina agreed to pay USD 1.5bn, it was at risk of activating the RUFO clause and hence of having to
\ncompensate the holders of the bonds restructured in 2005 and 2010 (who, at the time, agreed to a 70% haircut on
\nthe bonds\u2019 nominal value), which total nearly USD 56bn (all bonds, including those not governed by US law).<\/quote>
\n Since
\nthe country\u2019s foreign exchange reserves reached USD 29bn on 31 May 2014, one understands why Argentina opted
\nto default, as this does not interrupt negotiations with creditors, on the contrary.<\/p>\n\n
\nexperienced an altogether much more serious economic and social crisis (15% fall in GDP in Q2 2002 compared
\nwith a 0.2% decrease in Q1 2014). Public finances are not in the dire straits they were in back in 2001. There
\nremains that the default can but increase the refinancing costs of the central and provincial governments and drive
\ndown the peso (hence lead to higher imported inflation, etc.).<\/li>\n<\/ul>\n\n
\nbe easier to reach an agreement with the holdouts. It is not really in anyone\u2019s interest to accelerate debt
\nrepayment at this point in time (in the event of default, it requires only 25% of the holders of an Argentine bond
\nseries to vote for an acceleration to obtain the payment in full of the principal and interest for this series).
\nArgentina has 60 days to make a payment before an acceleration becomes possible. The country could also seek to
\nsuspend the application of the RUFO clause, but this would require a vote by 85% of exchange bondholders and of
\n66.7% of bondholders for each bond series, which is not impossible to secure but looks daunting.<\/li>\n<\/ul>\n\n
\nperiod pushed back the deadline to 30 July), S&P logically determined Argentina to be in Selective Defaut (CCC-previously). CDS should be activated by the ISDA Determinations Committee (failure to pay) when it meets today[[Friday, the 1st august]].
\nNote that the 15 members of this committee include Elliott Management, the owner of NML Capital, which is the
\nplaintiff in the case. As for Argentina, it will argue that the funds were transferred to BNY Mellon acting as central
\ndepository and that the blocking of the funds was not of its doing. The notional value of the CDS is quite limited at
\nUSD 20.6bn, with a net of USD 1.04bn compared with USD 3bn for Greece in 2012. Again, this does not point to
\nthe existence of a systemic risk.<\/li>\n<\/ul>\n\n
\nlimited, the default risk having been priced in to a large extent before its occurrence. Argentine CDS were already
\namongst the most expensive in the world (although they never reached the heights scaled by Greek CDS in March
\n2012).There remains that Argentina\u2019s 2014 default is a very different credit event to the Greek default in 2012 or
\nthe earlier Argentine default in 2001.<\/li>\n<\/ul>\n![\"5y_cds_argentina.jpg\"](\"http:\/\/beta.next-finance.net\/wp-content\/uploads\/2014\/08\/5y_cds_argentina.jpg\")
\n![\"argentina_sovereign.jpg\"](\"http:\/\/beta.next-finance.net\/wp-content\/uploads\/2014\/08\/argentina_sovereign.jpg\")
<\/p>\n\n
\n(4.5% of EBITDA) and Telecom Italia (EUR 650m investment in Telecom Argentina) could come under a little
\npressure. Other corporate concerned by all this also include Spanish banks Santander and BBVA, also certain car
\nmakers.<\/li>\n<\/ul>\n\n
\nto Repsol, etc.) and obviously Argentina\u2019s return to the international markets will not be any easier.<\/li>\n<\/ul>\n\n
\nexchanges, notably when governed by US law. Disputes in other jurisdictions could become more chaotic, while
\nsovereign issuers could resort increasingly to Collection Action Clauses (CAC) to avoid wrangles of this type.<\/li>\n<\/ul>\n
<\/a>\n\t\t\t<\/div><\/figure>