UPDATE 1-Argentina bondholders working with Deutsche Bank on RUFO waiver

Thu Aug 21, 2014 5:50pm EDT

(Adds details, background)

By Davide Scigliuzzo

NEW YORK, Aug 21 (IFR) - A group of Argentina's exchange bondholders is working with Deutsche Bank to remove the so-called RUFO clause that prevents the sovereign from voluntarily offering holdout creditors better terms than those of its 2005 and 2010 restructurings.

Christopher Clark, a partner at law firm Latham & Watkins, which is advising holders of over EUR5.2bn of Argentine debt, told IFR on Thursday that a consent solicitation on the clause is in the works.

"We are moving forward and we are working with Deutsche Bank to progress as rapidly as possible to a solicitation," Clark said.

The Argentine government has often cited the Rights Upon Future Offers (RUFO) clause as a major stumbling block in its ability to cut a deal with the holdouts, who are owed US$1.33bn plus interest, according to a US court ruling.

Critics, however, argue that Argentina has been using the provision as an excuse and that its latest proposal to swap foreign-law restructured bonds for local-law securities demonstrates it has no intention to cut a deal with holdout creditors.

The clause is set to expire at the end of 2014, but the Argentine government has so far given no indications that it would be willing to restart talks with litigant investors next year.

A waiver of the RUFO clause would require the consent of bondholders representing at least 75% of the nominal outstanding on each series. Alternatively, the waiver can be obtained with two third majority of each series provided that all holders representing at least 85% of the nominal outstanding amount agree to the waiver.

While the consent solicitation can be launched without Argentina's approval, it is unclear whether bondholders would be able to close the deal without the sovereign's consent.

"There is no problem launching the solicitation without the Republic's consent," said one lawyer familiar with the situation. "I just don't know what happens if the Republic doesn't sign the supplemental indenture in the end. It's an interesting question."

Argentina has US$56bn of restructured bonds outstanding, according to HSBC.

Deutsche Bank declined to comment. (Reporting by Davide Scigliuzzo; Editing by Paul Kilby)