Argentina Offers Voluntary Debt Swap to Pay Bond Holders Locally

Argentina is looking to dodge a US court ruling that banned payments to its restructured debt holders by arranging a voluntary debt swap, as the country looks to emerge from its second default in 13 years.

President Cristina Fernández, said the country is aiming to service debt locally and allow bondholders to swap their debt issued under foreign law for bonds of the same value governed by local law.

The government would open an account at Banco de la Nación in Buenos Aires to make payments on its bonds, stopping services of its US intermediary bank, Bank of New York Mellon.

The proposed swap will be voluntary and the plan takes into account the holdout funds, who would get funds under the terms of the 2010 debt restructuring, according to Fernández.

"This is an option bondholders have. It's not an obligation because we can't impose obligations on them according to our contracts. Our contractual obligation is to always guarantee that they can collect," she said.

The government is seeking approval from the congress for the plans.

Already being in recession, Argentina has been looking to repair its economy attracting finances from the international capital market. In a major blow to its reputation, the country fell into a technical default as a result of a dispute with some holdout creditors.

The country has been engaged in a long legal battle with hedge funds led by Elliott Management and Aurelius, which refused to take part in the country's debt restructuring. About 92% of the country's creditors agreed to swap debts and accept less money.

The holdout funds later sued the government for full payment.

US Judge Thomas Griesa had earlier ruled in favour of the so-called vulture funds, barring Argentina from paying the holders of its restructured debt unless it pays the hedge funds. He has also blocked Argentina's coupon payment to restructured bondholders through Bank of New York Mellon.

The country's settlement talks with the holdout creditors failed and it ended up defaulting on its debt at the end of July.