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By Davide Scigliuzzo
NEW YORK, Aug 12 (IFR) - Holdout investors' legal battle
with the Argentine sovereign could get a lot messier should
holders of newly defaulted debt decide to declare principal and
interest immediately due.
The move, known as acceleration, could push Argentina into a
new restructuring on up to US$30bn in debt and significantly
complicate efforts to put its decade-long debt woes to rest.
"It would be a mess," said Antonia Stolper, a partner at
Shearman & Sterling. "Once in that world, you have created a
whole new set of holdouts and the situation could become highly
An acceleration on the restructured bonds would also deal a
blow to a group of hedge funds led by Elliott Management and
Aurelius Capital, who could suddenly have to share their claim
with a much larger pool of investors.
"In the event of an acceleration, it is hard for me to
imagine that Argentina would settle with (the holdouts) without
having a plan for the exchange bondholders. It's just not
realistic," said Stolper.
Accelerating their claims could also be a way for exchange
bondholders to force holdouts to come to a compromise sooner
rather than later.
"The only leverage the current restructured bondholders have
over Elliott is to accelerate," said Thomas Mullen, a partner at
TWM Capital. "Once this takes place, Elliott loses its advantage
as being the only thorn in Argentina's side."
Holders of Argentina's par bonds could be the first to pull
the trigger, as the securities they own are trading at around 50
cents to the dollar but become immediately due at par if
"Some people have been accumulating positions, especially in
the lowest priced bonds," said Mullen. "These bonds have the
greatest upside in the event of a declaration of acceleration."
Their claim, however, is somewhat weakened within the first
60 days from the July 30 default, as Argentina has so far missed
payments only on the discount bonds and any acceleration on the
pars would be automatically reversed if payments on the
"The pars are not payable until September 30th, so any
acceleration would have to be based on a cross-default with the
discounts," said a lawyer familiar with the situation.
"If the default on the discounts were cured within 60 days,
par holders' right to accelerate would disappear and any prior
acceleration would be automatically rescinded."
To avoid showing their hand to the holdouts, par holders
might decide to wait until closer to September 30 to accelerate,
which would allow them to capture any upside on the bonds in the
event that a deal between holdouts and Argentina is struck
"The par holders may well prepare to accelerate, but hold off
for a bit to see if the cross-default can be cured in time,"
said the lawyer. "I suspect that they prefer a settlement to
Sources close to one of the holdout firms said the hedge
funds don't see any real threat from acceleration, as any such
process could be too cumbersome for some exchange bondholders
and take a long time to be completed.
The acceleration requires the consent of at least 25% of
holders of a particular series of bonds to be triggered. But
after an initial notice is sent to bondholders, the process has
a long way to go, leaving holdouts enough time to cut a deal
with the sovereign.
Once started, however, the acceleration process would
require higher threshold to be reversed, limiting the ability of
a core group of creditors to use it simply as a negotiating
tactic. "It only takes 25% to accelerate, but it takes 50% plus
a full payment of missed coupons and accrued interest to reverse
the acceleration," said Stolper.
(Reporting by Davide Scigliuzzo; Additional reporting by Joan
Magee; Editing by Paul Kilby)