UPDATE 2-Argentine holdout sees Repsol, Paris Club deals as model for talks

Tue Jul 1, 2014 2:22pm EDT

(Adds Aurelius comment, details on deposit, background)

By Daniel Bases

NEW YORK, July 1 (Reuters) - Argentina's past deals to settle claims with Spanish oil major Repsol and the Paris Club of creditor nations could serve as examples of how to negotiate a settlement to a decade-old debt dispute, one of the lead holdout bondholders said on Tuesday.

Both of those deals, in total worth about $15 billion, allowed Argentina to preserve its dwindling foreign currency reserves, which stand at $28.5 billion.

Argentina faces a potential default unless it reaches a deal with holdout investors by July 30 when it must make a payment on its restructured sovereign debt. The holdouts rejected previous restructuring deals Argentina offered after it defaulted on about $100 billion in 2001-2002.

"In the case of the Paris Club, and this is quite important and illustrative, Argentina recognized after also about the same amount of time we have been dealing with our claims, recognized the total claim of the Paris Club, principal, interest, and penalties and agreed to settle it by paying a portion in cash and the bulk of it in bonds," Jay Newman, senior portfolio manager at Elliott Management, one of the lead holdouts in the sovereign debt dispute with Argentina, told CNBC TV.

Argentina was ordered in 2012 to pay the holdouts, led by Elliott Management Corp, and Aurelius Capital Management $1.33 billion plus accrued interest by U.S. District Court Judge Thomas Griesa in New York.

Argentina must pay holdouts at the same time it pays investors who accepted restructurings in 2005 and 2010. His ruling was upheld on appeal and denied a hearing by the U.S. Supreme Court, effectively exhausting Argentina's U.S. legal recourse.

A deal with the holdouts would be the final element in a campaign by the government to clear up its arrears and allow it to re-enter the international capital markets for desperately needed cash to help fund development, especially the 1,000-foot thick Vaca Muerta shale oil and gas field in Patagonia.

DEALMAKER

Economy Minister Axel Kicillof in recent months agreed a settlement with Repsol SA under which his government issued $5 billion worth of bonds to compensate it for Argentina's seizure of its YPF subsidiary. Those bonds are governed by Argentine law, putting them out of the reach of U.S. courts.

This ended a two-year dispute but was 50 percent of what Repsol had originally demanded for the seizure. The bonds were later sold by JPMorgan with the cash going to Repsol.

Kicillof settled arrears of nearly $10 billion with the Paris Club by agreeing to make payments in cash installments.

Paris Club rules forbid any reduction in the value of the country's debt without a program under the auspices of the International Monetary Fund, something Argentina would not accept.

Argentina is sending an unnamed delegation to New York on July 7 to meet with a court-appointed mediator, or so-called special master, but did not say if it would meet face-to-face with the holdouts.

On Monday, Newman complained Argentina had not met with the him or the other holdouts. Argentina announced the delegation's trip to New York several hours later.

In a statement issued on Tuesday, Mark Brodsky, the chairman of Aurelius Capital Management, remained skeptical.

"I predict Argentina will not send a delegation to the Special Master next week, or will send one without any authority to depart from the prior exchange offer terms. Either way, Argentina's government seems determined to plunge the country into a completely avoidable crisis on July 30," Brodsky 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.

Last week Argentina defied Griesa and made a scheduled coupon payment of $539 million due June 30 (with a 30-day grace period) 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. Griesa said the deposit was illegal and the money should "simply" be returned to the Republic.

That deposit, made up roughly of $232 million and 225 million euros ($308 million) has not moved from the account because no formal order has been issued by Griesa to return it to the government, said sources familiar with the situation. The sources spoke on condition of anonymity given the unsettled legal matter, saying "this is a fairly unique situation."

The cost to insure a portfolio of Argentine sovereign debt dropped on Tuesday, after a steady climb in the past week. An investor wanting to insure a $10 million trade for one year would need to spend $2.77 million as an up front cost plus an additional $500,000, according to data provider Markit. Late on Monday the up front cost was $2.92 million. (1 euro = $1.3687) (Additional reporting by Hugh Bronstein in Buenos Aires; Editing by Chizu Nomiyama, W Simon and Andrew Hay)

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