Argentina May Play For Time With Payment To Holdouts

Jun 23 2014 | 10:11am ET

Argentina is prepared to offer hedge-fund holdouts from its 2001 default as much as US$400 million in exchange for more time to hammer out a final deal, one of the country’s leading newspaper reports.

The U.S. Supreme Court last week refused to accept Argentina’s appeal of lower-court rulings ordering it to pay the hedge funds, led by Elliott Management and Aurelius Capital Management, US$1.5 billion or risk defaulting on its restructured debt. Argentina has continued to talk tough on what it calls the “vulture investors”—with full-page advertisements in The New York Times, Washington Post and The Wall Street Journal this weekend—but also said it plans to hold talks with the hedge funds for the first time. President Cristina Kirchner said Friday that she had ordered Argentina’s U.S. attorneys to seek fair conditions for talks with the holdouts and the judge overseeing the case.

“We want to meet our obligations with 100% of creditors,” Kirchner, who is leaving office next year, said. “We only ask that they give us fair conditions for negotiation that are in line with the Argentine constitution and national laws.”

The latter could be a reference to the rights upon future offers provision in Argentina’s 2005 and 2010 debt exchanges, which prohibits the country from voluntarily making a better deal with the holdouts. Creditors who tendered their defaulted debt for restructured notes took a roughly 70% haircut as part of the deal.

While the RUFO expires are the end of the year, it is U.S. law, and not Argentine, that is most pressing: Under the terms of U.S. District Judge Thomas Griesa’s ruling, Argentina is barred from making payments on its performing debt without also doing so on its defaulted debt. Its next payment on the restructured bonds is due on June 30; it will default 30 days later if the payment is not made.

To avoid both a default and a violation of the RUFO, La Nacion reports that Argentina could pay the holdouts between US$300 million and US$400 million as a sign of good faith. “The initial sum would be equivalent to a 65% reduction compared with what was paid to restructured bondholders who entered the 2005 and 2010 swaps,” the paper quoted an Argentine official as saying.

In exchange, Argentina would seek to extend negotiations into next year, with a final deal giving the holdouts long-term bonds, similar to agreements reached with the Paris Club creditor nations and Spanish oil company Repsol.

“Officializing in January would allow for an end to the RUFO clause,” a government source told La Nacion. “We depend on Griesa.”

For its part, Elliott has said it would accept new bonds as part of a deal with Argentina, similar to the Paris Club and Repsol settlements. But the hedge fund made clear it was skeptical that an agreement could be reached, telling the Journal that “there is no dialogue yet” and that “the capacity of Argentina to pay is clear; what is not clear is when they’re going to show up.”

Aurelius chief Mark Brodsky was even blunter: “It does not matter what Aurelius would accept at next week’s settlement meeting, because we do not believe Argentina has any intention of having that meeting.”

Argentina has said it cannot afford to pay the holdouts in full. But the country can ill-afford a second default in 13 years, which could send its already ailing economy reeling.

In the wake of the Supreme Court decision, Argentina began plans to issue new restructured debt under Argentine law, which would allow it to continue to make payments on it without paying the holdouts. Last week, Griesa made clear that such a move would represent a violation of his orders.

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