Argentina, holdouts meet in debt dispute with court appointee

NEW YORK Thu Jul 24, 2014 7:07pm EDT

Argentina's Finance Secretary Pablo Lopez (C) arrives for debt negotiation talks with court-appointed mediator Daniel Pollack in New York, July 24, 2014. REUTERS/Mike Segar

Argentina's Finance Secretary Pablo Lopez (C) arrives for debt negotiation talks with court-appointed mediator Daniel Pollack in New York, July 24, 2014.

Credit: Reuters/Mike Segar

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NEW YORK (Reuters) - Representatives for holdout investors and Argentina in the country's ongoing debt default met for about three hours with a court-appointed mediator in New York on Thursday, less than a week before Argentina could once again default.

Several members of Argentina's delegation left the Manhattan office of special appointee Daniel Pollack around 3:30 p.m. EDT but declined to comment on the talks. Edward Friedman, a lawyer for Aurelius Capital Management, one of two leading holdouts, emerged shortly after, also without commenting.

Argentina faces its second default in 12 years if it fails to cut a deal with the hedge funds demanding full payment, instead of a reduced amount, for defaulted bonds. In 2002 the country, facing dire economic conditions, defaulted on approximately $100 billion of sovereign debt.

The two sides were ordered by U.S. District Judge Thomas Griesa to meet with Pollack until a resolution is reached. Without a settlement, or Argentina electing to pay the holdout hedge funds a court-ordered $1.33 billion plus accrued interest, Argentina could be in default.

Earlier in the day, Argentina's La Nacion newspaper reported that one of two lead holdouts in the case, NML Capital Ltd, a division of Elliott Management Corp, could call for Griesa to temporarily suspend, or stay, his order that Argentina pay holdout creditors. Argentina says the order is pushing it toward default.

However Mark Brodsky, chairman of Aurelius Capital Management, said in a statement that "the story is utter fiction."

Argentina was ordered to pay the holdouts at the same time it paid bondholders who accepted an exchange, or restructuring, of defaulted debt in 2005 and 2010.

In the wake of La Nacion's story, investors bid Argentine debt prices higher and narrowed the yield spread over benchmark U.S. Treasuries.

Yields on restructured Argentine debt, such as the 2038 Par bonds, traded up 1.068 points in price in mid-morning New York trade, according to Reuters data. The price rose sharply on La Nacion's story, but then fell back once Brodsky's statement was reported. The bond is yielding 8.38 percent at a bid price of 52.865.

"Absolutely Brodsky moved the market. The official denial from the holdouts clearly had an impact on market pricing as this is a much more credible source than the rumors reported in the local press," said Siobhan Morden, head of Latin America strategy at Jefferies in New York.

Earlier, Argentina's Cabinet Chief Jorge Capitanich said the country was not holding negotiations behind the scenes with the holdout investors.

Argentina, Latin America's No. 3 economy, argues paying the holdouts would break a legal clause protecting creditors who accepted large writedowns after its 2002 default and open it up to claims worth as much as $15 billion.

Griesa's injunction, which blocks payment, has stopped Argentina from transferring a June 30 coupon payment to exchange bondholders. That triggered a 30-day grace period that ends on July 30.

(Additional reporting by Alejandro Lifschitz and Sarah Marsh in Buenos Aires)

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