Billionaire Singer’s Smoking Gun Sparks Default-Risk Jump

The upfront cost of protecting $10 million of the nation’s debt against non-payment for three months has almost doubled to $734,046 since May 27, when the U.S. Supreme Court scheduled a conference this month to decide whether to hear Argentina’s appeal of an order to repay creditors. Newspaper Clarin reported on May 28 that Argentina’s lawyer recommended in a memo that the nation default if the petition is denied.
With interest payments on $13 billion of bonds at risk June 30 if the U.S. court rejects Argentina, the nation’s debt securities are the most expensive in the world to protect using default swaps. A lawyer for hedge fund Elliott Management Corp., one of the creditors from Argentina’s default in 2001 holding out for better terms, told a judge on May 30 the leaked memo may be “the smoking gun” showing Argentina plans to defy U.S. courts and default.
“People had become a little too comfortable,” Ray Zucaro, who helps manage $390 million at SW Asset Management LLC, said by telephone from Newport Beach, California. “Once people saw Argentina’s thought process in black and white, it brought it to the forefront of people’s minds.”

Swap Volatility

A rejection of Argentina’s appeal would leave intact a 2012 ruling requiring the country pay holders of debt left over from its 2001 default in full when it pays restructured notes.
Jesica Rey, a spokeswoman for the Economy Ministry, didn’t reply to an e-mail seeking comment on the memo or plans to default.