Argentina Talks Heat Up As Deadline Nears

Jul 30 2014 | 9:08am ET

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.”


In Depth

Q&A: Brevan Howard’s Charlotte Valeur Talks Strategy

Sep 18 2014 | 11:18am ET

Charlotte Valeur chairs the board of Brevan Howard Credit Catalysts, an LSE listed...

Lifestyle

Hedgies Rock Out For Children's Charity

Sep 15 2014 | 8:40am ET

It's that time of year again—when hedgies trade in their spreadsheets for guitars...

Guest Contributor

Volkered: How Financial Sector Reforms are Creating Opportunities for Hedge Funds

Sep 16 2014 | 11:28am ET

New regulations have dramatically curtailed proprietary trading activity in investment...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

September 2014 Cover

The London Whale: Rogue risk management

Credit default swaps brought down the London Whale and cost JPMorgan $6.2 billion. Here is how it happened.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.