Argentine holdouts say would discuss debt extension in good faith

NEW YORK Tue Jun 24, 2014 7:06pm EDT

Argentina's Economy Minister Axel Kicillof announces what the government will do following a major setback in its long-running legal battle against ''holdout'' investors in Buenos Aires June 17, 2014.  REUTERS/Enrique Marcarian

Argentina's Economy Minister Axel Kicillof announces what the government will do following a major setback in its long-running legal battle against ''holdout'' investors in Buenos Aires June 17, 2014.

Credit: Reuters/Enrique Marcarian

NEW YORK (Reuters) - Holdout investors in Argentine sovereign debt said on Tuesday they would discuss an accommodation to let the government pay other bondholders facing a potential default if negotiations to settle the legal dispute have made good progress before July 30.

Lawyers representing the holdout investors, led by Elliott Management's NML Capital Ltd and Aurelius Capital Management, also said in a letter to U.S. District Judge Thomas Griesa there were no grounds to grant Argentina's request to reinstate a suspension of his order to make payment.

A bond payment of $900 million is due Monday to investors who participated in two prior restructurings on the same terms in 2005 and 2010. There is a 30-day grace period before an actual default can be declared if there is no payment.

"If as July 30 approaches the parties have made good progress but more time is needed, and Argentina has not taken action to evade the Amended February 23 orders, Argentina and the Plaintiffs will both have a strong motivation to work out a consensual accommodation, on mutually agreeable terms," Robert Cohen of Dechert, lead counsel to the holdouts, said in the letter to Griesa.

Cohen went on to say this would allow the settlement process to continue, allow Argentina to make the payment to exchange bondholders within the grace period and give his clients protections and compensation for the risk that the settlement effort fails after Argentina makes its payment.

On Monday, Griesa appointed New York financial trial lawyer Daniel Pollack as a special master to assist in the negotiations.

Pollack would not respond directly when asked whether a meeting with Argentine Economy Minister Axel Kicillof was scheduled, saying: “I am making every effort to assist the parties to reach a resolution of their litigation as rapidly as possible. The issues are complex and very significant for all parties.” A source familiar with the situation said Pollack has already begun the process.

"There was a meeting today with both sides' lawyers and Pollack, but it was strictly a get to know you gathering rather than a substantive discussion on the issues," the source said.

Kicillof is due to speak at the United Nations in New York on Wednesday about the debt situation, Argentina's U.N. Ambassador Maria Cristina Perceval told Reuters. Kicillof will also meet with lawyers for the Argentine government while in New York, a government source in Buenos Aries told Reuters, but it is unclear if he will also meet with holdout investors or Pollack.

"Argentina's officials have yet to engage in any way with the principals of its creditors, or even take steps to schedule such a meeting," the letter from Dechert said.

Argentina's lawyers on Monday asked Griesa to suspend his order, which would force the nation to either pay holdouts at the same time it makes a payment on restructured debt or be barred from paying anyone - thereby creating a technical default even though the country has the cash to cover its debt.

According to the Dechert letter, Judge Griesa held a conference call with the lawyers from both sides to discuss Argentina's request to suspend, or stay, his order.

Griesa's order was upheld after the U.S. Supreme Court on June 16 denied the government's request to hear an appeal on the injunction put on financial institutions from transferring payments by the government through the U.S. banking system.

The plaintiffs, who have waged battle with Argentina in the New York courts, won a 2012 judgment for $1.33 billion. They claim in the letter to Griesa that with past due interest, the award would be approximately $1.65 billion by June 30.

Argentina claims that if it pays the holdouts it would face a potential demand of up to $15 billion from other holdouts not involved with the case, an amount representing more than half of the government's $28.5 billion in foreign currency reserves.

But analysts say the $15 billion figure appears too high. Moody's Investors service said the claims could rise to $7.5 billion if all the unrestructured debt under New York law is now claimed. That figure rises to $12 billion, Moody's said, if all holdout claims in U.S. dollars and euros were to seek payment.

Roughly 93 percent of the bondholders who owned the approximately $100 billion in sovereign debt that Argentina defaulted on in 2001-2002 accepted the restructuring for less than one-third the original value of the bonds.

Argentina's restructured U.S. dollar denominated debt traded mixed on the Tuesday after rallying on Monday to the best levels since 2011.

Par bonds maturing 2038 edged 0.017 points higher in price to bid 48.42, with the yield down to 9.07 percent.. Discount bonds maturing 2033 were off 0.79 points to bid 87.43, lifting the yield to 9.94 percent, according to Thomson Reuters data.

Argentina's share of the JPMorgan Emerging Markets Bond Index Plus underperformed the index with yields over comparable benchmark U.S. Treasuries wider by 5 basis points to 674 basis points and total returns for the day down 0.17 percent.

Separately, the International Swaps and Derivatives Association (ISDA) on Tuesday refused to consider whether default could be declared based on statements last week by Kicillof that Argentina would not pay its obligations and would seek other ways around Griesa's order.

(Additional reporting by Jonathan Stempel, Louis Charbonneau, Joseph Ax, IFR's Davide Scigliuzzo in New York, and Walter Bianchi in Buenos Aires; Editing by Tom Brown and Cynthia Osterman)

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