Argentina slams U.S. judge, holdouts see no private debt deal

BUENOS AIRES/NEW YORK Wed Aug 13, 2014 6:35pm EDT

People walk past a poster depicting U.S. District Court for the Southern District of New York Judge Thomas Griesa as a vulture in Buenos Aires, August 12, 2014.    REUTERS/Marcos Brindicci

People walk past a poster depicting U.S. District Court for the Southern District of New York Judge Thomas Griesa as a vulture in Buenos Aires, August 12, 2014.

Credit: Reuters/Marcos Brindicci

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BUENOS AIRES/NEW YORK (Reuters) - Prospects for a private sector solution to Argentina's sovereign debt dispute deteriorated on Wednesday after holdout investors said they entertained no realistic offers from bankers while the government dashed hopes it might soon agree to restart talks.

The country's peso currency hit a record low on fears that the already years-old debt saga would linger on indefinitely.

Addressing rumors in the marketplace of offers from big international banks to buy up its position in defaulted debt, one lead holdout investor said after many meetings nothing presented made sense for a settlement on bonds dating back to a near $100 billion default in 2002.

"That engagement has convinced us that there is no realistic prospect of a private solution," Aurelius Capital Management said in a statement.

Aurelius is run by Mark Brodsky, who, along with his former firm Elliott Management Corp, have waged a decade-long battle in the U.S. courts to collect on the defaulted Argentine debt they have owned and purchased at steep discounts over the last 12 years. The holdouts spurned two prior restructurings, holding out for better terms.

"No proposal we received was remotely acceptable. The entities making such proposals were not prepared to fund more than a small part, if any, of the payments they wanted us to accept. One proposal was withdrawn before we could even respond. And no proposal made by us received a productive response," the statement said.

Citigroup (C.N), Deutsche Bank (DBKGn.DE), HSBC (HSBA.L) and JP Morgan (JPM.N) offered the holdout hedge funds 40 cents on the dollar for the roughly $1.66 billion of bonds, including interest, and raised the offer to 50 cents on Monday, sources told Thomson Reuters IFR.

A second default occurred after Argentina missed a July 30 deadline for coupon payments on bonds restructured in 2005 and 2010. After the deadline passed, hopes turned toward proposals drawn up first by Argentina and then by large international banks to work out a solution.

By clearing up the default with the holdouts from the 2002, Argentina would be able service its restructured debt.

Argentina claims it cannot pay the holdouts on what would be better terms than the investors who exchanged their defaulted bonds under the so-called RUFO clause (Rights Upon Future Offers).

"Argentine officials hide behind the RUFO provision but make no effort to seek waivers from it (despite being offered them by many of the exchange bondholders)," Aurelius said.

U.S. District Court Judge Thomas Griesa, who has presided over the long-running legal battle, said on Friday he would issue a contempt order unless Argentina stopped claiming it had met its obligations and was not in default.


Argentina came out swinging on Wednesday against Griesa, defying the threatened contempt order.

Far from backing off, Cabinet Chief Jorge Capitanich said Griesa had not grasped the case's complexities and that no new talks had been scheduled with the hedge funds.

"The proper conditions do not exist to negotiate," Capitanich told reporters in Buenos Aires.

Argentina's peso weakened more than 1.5 percent on Wednesday to a record low 13.15 per U.S. dollar in unofficial trade ARSB=. Foreign exchange controls force most Argentines to buy dollars on the black market, which is widely seen as a truer rate of exchange than the official rate of 8.2750 per greenback.

In 2012, Griesa ordered Argentina to pay the holdout group led by Aurelius and Elliott $1.33 billion plus interest and barred it from repaying the holders of exchanged debt without paying the holdouts too.

In June, Argentina deposited $539 million into the account of an intermediary bank to make a June 30 coupon payment. Griesa ruled the deposit illegal and ordered the money frozen.

As a result, Argentina effectively missed the payment. The International Swaps and Derivatives Association (ISDA) will hold an auction on Aug. 21 to settle Argentina's default swaps, Thomson Reuters' IFR reported.

Holders of the restructured bonds have asked Griesa to allow the intermediary bank to release the money, and Capitanich criticized the judge for not acting on those requests.

"His lack of decision clearly comes from not understanding the process, not understanding Argentina's status as a sovereign country," Capitanich said.

Argentina derides the holdout funds as "vultures" out to wreck the country's finances in their pursuit of huge profits. Opinion polls show most Argentines side firmly with the government.

Economy Minister Axel Kicillof on Tuesday posted a drawing on his Facebook page of a beady-eyed vulture wearing a shirt with the letters "U.S.A." and emblazoned with the U.S. flag. Next to the drawing are written the words "greed" and "cruelty". (here)

Over-the-counter sovereign bonds RPLATC traded in Buenos Aires fell by an average 1.3 percent on the day.

(Additional reporting by Davide Scigliuzzo of Thomson Reuters IFR in New York, Daniel Bases in New York, Sarah Marsh and Walter Bianchi in Buenos Aires; Editing by Jonathan Oatis, Paul Simao, Chizu Nomiyama, Peter Galloway and Bernard Orr)

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Comments (29)
DonD1977 wrote:
Argentina may have a point about their rights as a sovereign nation – IF they had not waived those rights already by signing a contract with specific payment obligations – enforced by international courts. This is about honoring an existing valid contract – however inconvenient that will be for Argintina’s foreigns reserves – this is an obligation they are capable of meeting. For everyone’s sake they should do so as soon as possible without futher harming their reputation and the status of developing nations in the sovereign debt market.

Next time sell sovereign debt with “at will” payments and see who buys – it would be cheaper than these preventable and pointless default fights – 13 times in a century?

Aug 13, 2014 10:20am EDT  --  Report as abuse
gregbrew56 wrote:
This article shows who REALLY controls the world.

Hint: It’s neither the voters nor the governments they put into place.

Aug 13, 2014 11:36am EDT  --  Report as abuse
njglea wrote:
President Cristina Fernandez is right. These greedy hedgefunds are “vultures” out to wreck her country’s finances in their pursuit of huge profits. They are trying to destroy governments – including state governments in the U.S. who won tobacco settlements – with exorbitant interest. It must be stopped in the United States and around the world.

Aug 13, 2014 11:38am EDT  --  Report as abuse
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