UPDATE 3-Holdout says Argentina bent on default as debt deadline looms

Fri Jul 18, 2014 3:38pm EDT

(Recasts with holdout, adds trader quote, updates bonds)

By Richard Lough and Daniel Bases

BUENOS AIRES/NEW YORK, July 18 (Reuters) - A lead holdout investor in Argentina's debt row said on Friday the South American country seemed determined to default, after market gossip of a possible breakthrough sent Argentine bonds higher.

NML Capital Ltd, a unit of Elliott Management Corp suing for full repayment on its bondholdings, said Argentine officials refused to meet or negotiate ahead of a July 30 deadline.

"The Argentine government appears determined to default. We hope it chooses to avoid this dead-end path," NML said.

If recession-hit Argentina fails to pay out or cut a deal with the New York hedge funds, it faces a default that would prolong its banishment from global capital markets and pile more pressure on an ailing currency.

Argentina says it needs a stay of the U.S. court order that triggered the deadline to reach agreement with the funds, which rejected the terms of huge writedowns after Argentina's $100 billion default in 2002.

Argentine dollar-denominated bonds earlier rallied in over-the-counter trading on market chatter the holdouts were open to a suspension.

The holdouts' lawyers said on June 24 the hedge funds would accommodate the government on timing if talks progressed well.

A source close to the situation regarding the holdouts' position told Reuters: "Their position is unchanged and it will remain unchanged."

SPECULATION

After NML's statement, the price of Argentina's dollar-denominated Discount bond slipped from an intraday high of $91.0 to $90.40, still 1.1 percent up on the day. Its dollar-denominated Par bond was 3.80 percent higher at $52.30, having earlier hit $52.75.

One bond trader in Buenos Aires said investors were still betting on either a stay or a deal.

"Prices won't fall because of what NML has said," the trader said on condition of anonymity.

The two sides have not met face-to-face, raising questions over Argentina's commitment to finding a resolution.

Asked whether talks were planned for next week, a government source said: "Nothing has been confirmed yet."

JP Morgan's Emerging Markets Bond Index Plus showed yield spreads between Argentina and comparable benchmark U.S. Treasuries narrowed by 28 basis points to 640 as of 14:45 EDT (1845 GMT). Total returns on the day were up 2.07 percent, far better than the overall index which was up 0.22 percent.

Argentina has exhausted its legal options to get around a 2012 ruling by U.S. District Judge Thomas Griesa that it pay holdouts $1.33 billion, plus accrued interest.

Griesa ruled Argentina could not service its restructured debt until it settled with the "holdouts" and blocked a June 30 interest payment, triggering a 30-day grace period.

Analysts say while the holdouts' legal position is strong, a fresh default would not serve their interest.

"In that case, the situation will become really ugly and there won't be any money for anyone," said Alberto Bernal, head of emerging markets at Miami-based Bulltick Capital Markets. (Additional reporting Eliana Raszewski in Buenos Aires and Jorge Otaola in Buenos Aires; Editing by W Simon, Andrew Hay and Chizu Nomiyama)

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