NEW YORK Holdout investors in Argentine sovereign debt said on Monday they have not met with the government to negotiate a settlement on defaulted debt, and accused Buenos Aires of refusing to enter talks as a 30-day countdown to default begins.
Holdout investors are led by Elliott Management's NML Capital Ltd and Aurelius Capital Management, two hedge funds that specialize in buying up deeply discounted or distressed debt and negotiating profitable settlements, often through the use of the courts.
"Argentina’s professed willingness to negotiate with its creditors has proven to be just another broken promise. NML is at the table, ready to talk, but Argentina has refused to negotiate any aspect of this dispute," said Jay Newman, senior portfolio manager at Elliott Management.
"We sincerely hope it reconsiders this dead-end path," Newman said, noting there have been no negotiations so far and the government has refused to commit to negotiations in the future.
Argentina late on Monday said it would send a delegation to New York to meet on July 7 with court-appointed mediator Daniel Pollack. It made no mention of whether it would sit down with the holdouts.
"Argentina is reiterating its desire to negotiate according to just, equitable and legal conditions that take into account the interests of 100 percent of creditors," the economy ministry said in a statement.
In 2012, U.S. District Judge Thomas Griesa in New York awarded the holdouts $1.33 billion plus accrued interest in a case based upon the pari passu, or equal treatment, clause used to sell the bonds originally in 1994.
The award, which says Argentina must make payment to holdouts at the same time it pays investors who accepted two sovereign debt restructurings in 2005 and 2010, was upheld on appeal and denied a hearing by the U.S. Supreme Court, effectively exhausting Argentina's U.S. legal recourse.
Last week Argentina defied Griesa and made a scheduled coupon payment of $539 million due June 30 on restructured bonds, saying it was bound by Argentine law to make the payment.
The money was deposited in the Bank of New York Mellon's account at the Central Bank of Argentina without making the court-ordered payment to holdout investors at the same time.
In total the government transferred $832 million for payment to various bondholders last week.
As a result of Griesa's ruling, U.S. banking institutions are blocked from making delivering payments to exchange bondholders. BNY Mellon told Griesa on Friday it did nothing with the deposit.
A BNY Mellon spokesman told Reuters the bank had no further comment beyond a notice issued Monday to exchange bondholders stating the court order stopped it from making the payments.
Now the clock starts on a 30-day grace period for Argentina to either come to an agreement with holdouts and unblock payment to exchange bonholders by July 30 or default on its bonds for a second time in 12 years.
Griesa named Pollack, a veteran New York financial trial lawyer, to try to mediate a settlement between Argentina and the holdouts.
Argentina defaulted on roughly $100 billion in sovereign debt in 2001-2002 and negotiated a restructuring with eventually 93 percent of bondholders in a deal widely considered one of the most onerous for investors in history, paying between 25 and 29 cents on the dollar.
Griesa on Friday called Argentina's deposit with BNY Mellon illegal and said that the money should "be returned to the Republic, simple as that."
Argentina responded saying the deposited money no longer belonged to the government. Its status remains unknown.
"The Argentine government seems determined to cause many billions of its debt to accelerate on July 30 and start yet another Argentine debt crisis. This is completely avoidable. An eminently affordable settlement can be reached with the holdouts, yet Argentina's administration refuses even to meet," Mark Brodsky, chairman of Aurelius said in a statement.
The cost to insure a portfolio of Argentine sovereign debt has risen in the last week. An investor wanting to insure a $10 million trade for one year would need to spend $2.92 million as an up front cost plus an additional $500,000, according to data provider Markit on Monday.
DEFAULT COUNTDOWN STARTS
The failure to deliver the coupon payment on restructured bonds by the end of business on Monday means Argentina is technically in default.
Varun Gosain, a portfolio manager at New York-based Constellation Capital Management with investments in Argentine assets who participated in the debt exchanges, is not necessarily reconciled to a default in 30-days.
"Both parties have incentives to try and move things forward. You don't need an agreement by July 30th, but you need everybody to think it is better to keep negotiating," he said.
Argentina says it cannot voluntarily offer better terms for a restructuring with holdouts because of a provision called the Rights upon Future Offers (RUFO), which expires on Dec. 31. It is designed to stop anyone getting a better deal than the exchange bondholders.
"I think RUFO is a big concern. Any agreement has to negotiate around it and if is not properly dealt with it could create a big contingent liability," said Gosain.
Argentina says an agreement with holdouts would open it to the risk of claims from other holdouts as well as exchange bondholders that would bankrupt the country.
On June 25 Economy Minister Axel Kicillof came to New York for 10-hour visit to speak at a meeting of the G77 plus China Committee at the United Nations. He said the country was being pushed into default though he did not meet with holdouts.
When Kicillof announced money was deposited with BNY Mellon, the government issued a statement mentioning "eventual judicial actions that would allow us to exercise our rights as a member of the international community ... before the International Criminal Court in the Hague."
This hints the government might try to take a new legal avenue to avoid the U.S. court order.
Kicillof is due back in the United States on Thursday to attend an Organization of American States meeting in Washington.