UPDATE 2-Argentina to offer debt under foreign law in bond swap-source
By Alejandro Lifschitz and Guido Nejamkis BUENOS AIRES, Aug 30 (Reuters) - Argentina will offer bonds governed by foreign law as part of its upcoming swap of defaulted debt, a government source with direct knowledge of the situation told Reuters on Friday. The government this week announced plans to open a third bond exchange as part of its effort to clean up non-paying debt left in the market after Argentina's 2002 sovereign default. More than 90 percent of the almost $100 billion in debt that Argentina defaulted on in 2002 was swapped for new securities in 2005 and 2010 bond exchanges. "It will be exactly like the offer (in 2010)," said the high-placed government source who was not authorized to speak publicly about the matter and asked to be anonymous. "The offer will be the same." The bonds are governed by U.S., British and Argentine law. The source said the government will try to be "flexible" in allowing holders to swap various bonds under various jurisdictions. The country has so far avoided a new debt crisis, thanks to the restraint of judges who last week issued a stay order delaying implementation of a decision pending review by the U.S. Supreme Court. Argentina lost an appeal of a U.S. court order requiring it to pay $1.33 billion to holdout investors who had refused to accept the reduction in terms offered by the government's restructured paper. The government is appealing the ruling and, in a separate debt swap plan, trying to exchange foreign debt for bonds governed by Argentinian rather than U.S. law. This swap could help the government avert a new default by protecting payments on restructured debt from the ruling in New York. The dissident bondholders led by NML Capital Ltd, a unit of Paul Singer's Elliott Management Corp, are demanding full payment on the defaulted debt. They have argued that Argentina cannot deny them their due while paying investors who had agreed to restructurings. If Argentina refuses to pay holdouts despite a standing order, courts could block payment of creditors who participated in the country's 2005 and 2010 debt restructurings. That would throw some $28 billion of foreign debt into technical default, triggering Argentina's second debt crisis in a little over a decade and undermining a recovery in South America's third-biggest economy. The government's effort at avoiding a fresh default could drag on for another year or more as it fights the holdouts to the bitter end in U.S. courts, and simultaneously looks to side-step any final ruling ordering it to pay up. Swapping into debt governed by Argentine law is one of a dwindling list of options for the government to avoid a default while sticking to its promise of not paying the holdouts the 100 cents on the dollar that they are demanding.