Less than two days before their country’s second default in 13 years, Argentine officials met with representatives of the hedge-fund holdouts from its last default for the first time yesterday.
Argentina has until midnight to strike a deal with the hedge funds, led by Elliott Management and Aurelius Capital Management, or default on a US$539 million interest payment to holders of its restructured debt. The two sides met for several hours yesterday with court-appointed mediator Daniel Pollack, and plan to resume talks again today.
The inclusion of the holdouts for the first time, the length of the talks and the unexpected participation of Argentina Economy Minister Axel Kicillof gave investors renewed optimism that a deal could be reached after days of increasing pessimism.
“We are working,” Kicillof said. Pollack added that there had been a “frank exchange of views and concerns.”
Argentina has insisted that it needs more time to reach a global resolution with all of its creditors. The country is concerned that cutting a deal with the hedge funds now, even under duress, would trigger a rights against future offers clause entitling investors who accepted Argentina’s restructurings in 2005 and 2010 to the same terms, potentially costing the country billions.
Kicillof arrived in New York with a representative of Argentina’s private banks, who have reportedly offered to either buy the holdouts’ bonds or make a US$250 million escrow deposit as a sign of the country’s good faith, in exchange for the holdouts’ agreeing to a stay of U.S. District Judge Thomas Griesa’s rulings ordering Argentina to pay.
Griesa did show some flexibility yesterday, allowing Argentina to make payments on bonds issued domestically. The judge noted that those bonds can’t be distinguished from those issued to Spanish oil company Repsol earlier this year, and that “the court cannot enjoin payment on the dollar-denominated exchange bonds without also upsetting the Repsol settlement.” He ordered the parties to come up with a way to distinguish between them before the next interest payment is due.
In addition to the moves from Argentina, a group of euro-denominated restructured bondholders—whose payments Griesa has also barred—offered to waive their RUFO rights if Griesa issues a stay. “This court can single-handedly avoid a default, the group, which includes Perry Capital, said.
The creditors said that their willingness to waive the RUFO clause, which expires at the end of the year, was a “clear signal that the republic may be able to obtain a waiver,” but that getting it “will take time.”
Despite the optimism, Argentina continued to maintain a hard line in public. “Argentina pays,” Cabinet Chief Jorge Capitanich said yesterday, referring to the country’s deposit of the interest payment with the Bank of New York Mellon in defiance of Griesa’s orders. “Argentina meets its financial obligations. It would be the first case in the world where a debtor pays… and a judge tries to interpret the opposite.”