UPDATE 3-Argentine holdout sees Repsol, Paris Club deals as model for talks

Tue Jul 1, 2014 10:13pm EDT

(Adds Argentine economy ministry statement, rating change)

By Daniel Bases and Sarah Marsh

NEW YORK/BUENOS AIRES, July 1 (Reuters) - Argentina's past deals to settle claims with Spanish oil major Repsol SA 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.

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.

Standard & Poor's rating agency placed Argentina's 'CCC-/C' unsolicited long- and short-term foreign currency ratings on "CreditWatch" with negative implications on Tuesday, citing likelihood of a default in interest payments.

Jay Newman, senior portfolio manager at Elliott Management, one of the lead holdouts in the sovereign debt dispute with Argentina, told CNBC TV Argentina's deal with the Paris Club was "important and illustrative" for a possible agreement.

"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," Newman said.

However, Argentina awarded Repsol only 50 percent of what it had originally demanded for Argentina's seizure of its YPF subsidiary.

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

Argentina must pay holdouts at the same time it pays investors who accepted swaps in 2005 and 2010. Griesa's 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 massive Vaca Muerta shale oil and gas field in Patagonia.

The Argentine economy ministry, which said on Monday it would send a delegation to New York next week to meet with a court-appointed mediator, said late on Tuesday the holdouts had asked Griesa in writing to ensure its payments on restructured debt did not reach exchange bondholders.

This was proof, the ministry said in a statement, that the holdouts did not want to "reach a just, equitable and legal solution that respects the interests of 100 percent of creditors."

DEALMAKER

Economy Minister Axel Kicillof's deal in February with Repsol ended a two-year dispute and led to the Argentine government issuing $5 billion worth of bonds in compensation.

Those bonds are governed by Argentine law, putting them out of the reach of U.S. courts, and were later sold by JPMorgan with the cash going to Repsol.

Kicillof also 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.

On Monday, Newman complained Argentina had not met with him or the other holdouts. Argentina announced the delegation's trip to New York several hours later although it has not said if the team would meet face-to-face with the holdouts and has not named its members.

In a statement issued on Tuesday, Mark Brodsky, chairman of Aurelius Capital Management, voiced skepticism.

"I predict Argentina will not send a delegation ... 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 government.

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, sources familiar with the situation said. The sources spoke on condition of anonymity given the unsettled legal matter. One said: "This is a fairly unique situation."

The Argentine economy ministry said on Tuesday the Bank of New York Mellon rejected an unspecified proposal by holdouts to ensure payment did not reach exchange bondholders. (1 euro = $1.3687) (Additional reporting by Hugh Bronstein in Buenos Aires and by Devika Krishna Kumar in Bangalore; Editing by Chizu Nomiyama, W Simon and Andrew Hay)