Argentina Debt Looks Bad Now, but May End in a Gusher

NEW YORK (TheStreet) -- The best place to learn what's really going on with the Argentine debt crisis may be in the Argentine press, although even this account is a bit misleading, speaking darkly of "vulture funds."

For vulture funds, read Paul Singer of Elliott Management. He specializes in buying distressed debt and then pressing for full payment. In this case, he bought old Argentine bonds, issued before the country's 2001 default. Holders of that debt refused deals taken by other bondholders in 2005 and 2010 to restructure their debt by taking new bonds for old ones and accepting a 50-70% haircut on the principal, which is what creditors take when their bonds prove to be no good.

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Instead, Singer demanded full payment, and in June, the Supreme Court agreed, ruling 7-1 on behalf of Singer's NML Capital. A New York judge has an injunction saying that the Singer debt must be paid first, before later bonds. Thus the present crisis in which Argentina hasn't paid a $539 million interest payment that was due on June 30. The 30-day grace period expired on Wednesday.

Still, if you have a bond issued by Argentina after 2001, you're going to be paid. The market understands that, and values current Argentine bonds at 96 cents on the dollar.

For Argentina, the issue isn't one of finances, but of national sovereignty. It made a deal that a few bondholders refused to take, and Singer bought out their interest. Thus the use of the phrase "vulture funds" by the Argentine press.

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