18 de junio de 2014 / 23:04 / en 3 años

Bonds rally as Argentina prepares holdout negotiations

* Argentina closer to negotiations with holdouts

* Bonds reverse losses after talks announced

* Swap proposal seen as difficult solution

By Paul Kilby and Davide Scigliuzzo

NEW YORK, June 18 (IFR) - Argentina appeared to be inching closer to a negotiated settlement today with litigant investors who are seen having a legal stranglehold on a sovereign that has few options left to avoid a technical default.

The country’s bond prices have seen some dramatic dips in recent days but prices largely ended higher Wednesday on news that Argentine government officials would begin talks with holdouts next week.

Par bonds were ending the day about four points higher at 44.75-45.25, while discounted bonds rallied a good two points to close at 77.00 mid market. “Everyone will be waiting to see how negotiations go,” said a trader. “It may give them some time and that is what they need right now.”

With the US Supreme Court rejecting Argentina’s petition to appeal rulings favoring holdouts, the government has until a June 30 coupon payment on the discounts to reach a settlement. If it can‘t, it will be forced to pay both holdouts and restructured bond holders or default on all its New York law bonds.

In theory, the government could push that deadline out another 30 days if it uses the grace period. But solving the payment problem over the next month or so was made all the more urgent today after the Second US Circuit Court of Appeals lifted a stay on a judge’s order to pay US$1.33bn to NML Capital, and other litigant investors.

The government needs time and could create some extra breathing space by asking Judge Thomas Griesa for a stay beyond June 30, or alternatively approaching exchange bond holders and convince them that they are willing to pay but require a standby agreement to negotiate further with holdouts, say lawyers.


Plans announced by Economy Minister Axel Kicillof last night to change the jurisdiction of restructured debt was seen more as a way of showing such willingness rather being a viable solution.

That’s because participation rates on any such exchange are likely to be low as many investors would be reluctant to be seen skirting an earlier ruling by judge Griesa, say market participants. Griesa reiterated his position today saying that the swap proposal would violate prior orders, according to Reuters.

“We don’t own any New York-law bonds at the moment, but if we did, we would have to see exactly what the structure of the proposal would be and run it though our lawyers to make sure we are not violating [the injunction],” said a New York-based investor.

Lawyers echo such sentiment. “It is hard for me to imagine that any of the parties involved would risk a contempt citation by assisting Argentina in evading Judge Griesa’s order,” said Antonia Stolper, head of the Latin America practice at law firm Shearman & Sterling.

Should the government carry out its plans to launch an exchange of New York law bonds for instrument with a local jurisdiction investors will be faced by a stark choice. Either accept an instrument without the protection of US court, but get paid. Or keep a bond and be defaulted on once again.


Some on the buyside see the swap proposals as little more than a negotiating tool to demonstrate that it has other options, however weak.

“No one would do that exchange,” said an investor involved in Argentine debt. “Argentina wants to negotiate and show it has a carrot and a stick, but it is a very small stick.”

Others see little use in participating ahead of a general election next year that some speculate could see the government of President Cristina Fernandez de Kirchner replaced with a more market friendly administration.

“You have to assume that any new administration 18 months from now will be more logical and that they will go back to holders of New York law bonds pay the penalty and continue serving the bonds,” said an investor involved in Argentina debt. “Once the holdout issue is resolved local law bonds will be worth less than New York law ones.”

While most legal experts think that Argentina can get around a RUFO clause that prohibits it from offering different terms to the holdouts, the idea that litigant investors and the Kirchner government can meet half way and solve the decades old legal battle is still being met with much skepticism.

“Both sides have really dug in their heels,” said Peter Lannigan, head of EM strategy at CRT Capital Group. “It is going to be challenging for them to avoid default.” (Reporting By Paul Kilby and Davide Scigliuzzo; Editing by Shankar Ramakrishnan)

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