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Argentina in last ditch talks as default looms

Jul 30, 2014

Talks continue after sovereign’s “frank exchange of views” with bondholders in 11th hour meeting over debt

Argentina’s finance minister is to continue meeting holdout creditors on Wednesday, in a bid to find a last-minute solution to its debt impasse, according to Argentine media reports.

Axel Kicillof met representatives of the holdouts for the first time on Tuesday in the presence of mediator Daniel Pollack.

"These were the first face to face talks between the parties," Pollack said in a statement after the meeting. "There was a frank exchange of views and concerns. The issues that divide the parties remain unresolved."

Argentina needs to reach an agreement with holdout creditors on Wednesday to avoid defaulting on its restructured debt. A protracted battle in US courts ended last month when the Supreme Court upheld a lower court’s decision to prohibit the sovereign from servicing restructured debt without first dealing with holdout creditors.

Attention turned on Wednesday morning to reports in local media that Argentine banks would intermediate by buying some debt in an attempt to mitigate legal risks to the sovereign. Such a move would be designed to avoid a clause that forces Argentina to offer any future deal with holdout creditors to holders of restructured bonds, known as the RUFO clause.

Talk of such a solution has circulated for at least a week, but the claims grabbed the market’s attention fully on Wednesday.

"There have been no official details from the mediator on the context of the discussion but the local press posits that the Argentina banking association has offered to post $250m to $300m in funds for an escrow payment (2010 debt reoffer terms to not violate RUFO) or alternatively has offered to buy the holdout bonds," Jefferies wrote on Wednesday.

"The participation of the Argentine banks is likely intended to mitigate the RUFO risk with an exchange in these liabilities with the government after RUFO expires. It is curious that in these final hours there has finally been some debate about how to resolve the RUFO liabilities."

The suggestions raised numerous questions, however, said Capital Economics: "Although a group of exchange bondholders have recently stated that they would waive the RUFO clauses, it is not clear if all of them would. There is a risk that exchange bondholders would instead file for accelerated repayment of their bonds should they fall into default." LF

See also

Argentina cleared to pay Repsol debt

Argy default would hit bank profits, says Fitch

How not to default on sovereign debt

The Holdout Saga: Season finale



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