The International Swaps and Derivatives Association (ISDA) announced Thursday that it had received the first request to consider whether a "failure to pay" credit event must be declared in the case of Argentina.

The global banking sector regulator said in a statement online that Swiss bank UBS had asked ISDA's determinations committee to assess the Argentine case after the South American country missed a June 30 deadline to pay interest on its bonds.

Any ruling that a credit event had occurred would trigger a series of insurance payments, including Argentine Credit Default Swaps (CDS), and give bondholders the right to demand their money back immediately.

The request came after Buenos Aires on Wednesday failed to strike a deal with hedge fund investors who had refused to participate in a 2005 debt restructuring of nearly $100 billion (74 billion euros) in defaulted Argentine arrears.

As a result, ratings agency Standard & Poor's has given Argentina a "selective default" status because the country is now legally barred from making payments to restructured bondholders.

On Thursday, however, Argentine Cabinet Chief Jorge Capitanich insisted that the country was not in default as it had honored the June 30 coupon payment. Capitanich accused US District Court Judge Thomas Griesa, who blocked the payment, of "mala praxis," or malpractice, and condemned the US government for failing to intervene.

US trustee bank holds on to payments

Judge Griesa ruled that Argentina could not service its exchange debt unless it paid the holdout hedge funds $1.33 billion plus interest at the same time.

The Bank of New York Mellon said Thursday it would continue to hold on to $539 million that Argentina had sent it in June for payment to creditors. The US-based trustee bank of the Argentine central bank said the funds would be held pending any further court order.

Judge Griesa has scheduled another hearing for this Friday, although a spokeswoman for the court would not elaborate on what would be decided.

Market analysts are divided as to whether or not a credit event can be declared on Argentina. While Swiss banking giant Credit Suisse said in a statement the country's credit default swaps were "likely to be triggered," Emiliano Surballe of Bank Julius Bär said that was not yet clear.

"The situation that generated the default was a lawsuit, not the failure of the country to transfer the proceeds to pay existing debt," he told the Reuters news agency.

Investors confident Argentina will pay up

Analysts said they expected ISDA to rule on the UBS request for the declaration of a credit event by August 4. Even though such an event would allow investors to force what is called "acceleration" for early payment on their bonds, they appear to be holding back on the move.

Rune Hejarskov, a portfolio manager for Danish Jyske Invest, which holds Argentine bonds, said he expected a "soft default scenario," in which prices for Argentine bonds would likely slide somewhat.

"There is confidence in what the government is going to do," he told Reuters.

Olivier De Timmermann from KBC Asset Management in Luxembourg told the same news agency that "acceleration" was not something bondholders would like to see.

Meanwhile, the German government is also expecting Argentina to meet its obligations under the 2005 restructuring deal it struck with the Paris Club of Creditors, which includes mainly sovereign lenders. Germany is Argentina's biggest individual creditor.

A spokesman for the German Economics Ministry said Thursday that an initial payment equivalent to $650 million had been transferred to creditor states on July 28, of which Germany had received 175 million euros.