NEW YORK, July 31 (IFR) - International banks could be joining the effort to buy up the Argentine debt from sovereign’s holdout creditors and resolve the messy default standoff, multiple sources said Thursday.
Just as Argentina went into its second default in 13 years following a bitter legal fight in the US courts, third-party banks were said to be mulling an offer to buy the bonds.
The wrangling over the debt in question - most of it bought on the cheap by hedge funds - led Argentina to miss a payment this week on other restructured debt and thus go into default.
A last-ditch effort by domestic Argentine banks to buy the debt, and allow the sovereign to save face by not paying in full the “vulture funds” that are holding out, failed on Wednesday.
“There has to be a way to broker a private solution,” said one bank managing director.
“There is a stigma in the eyes of the Argentine government about paying the so-called vulture funds; they see that as a defeat. It’s all psychological.”
Sources said the local banks were also still in the running for the roughly US$1.6bn purchase, which would account for par value of the bonds plus accrued interest.
Argentine newspaper Ambito named JP Morgan, Citi and HSBC as potential suitors for the holdout bonds.
A source at JP Morgan told IFR to take the report with “a grain of salt” but did not rule out that conversations were taking place.
“Any foreign bank going in to buy this debt would be doing so as a pure business transaction,” a managing director at another bank said.
Argentina has repeatedly argued that the so-called RUFO clause on its restructured debt means that it cannot obey a US court order to pay the holdout creditors in full.
The clause, which stipulates that the sovereign must offer the same terms to exchange bondholders as it does to holdouts, expires at the end of 2014.
“There needs to be an assurance from Argentina to any third-party buyer - whether it’s a local bank group or foreign bank subsidiary, or anyone - that once January 1 hits and the RUFO clause expires, the country won’t try to do some form of financial engineering and convert them into local-law bonds or tell them to take the deal at 25 cents as other people did,” the managing director said.
“The buyer would have to go on blind faith,” he said. “Argentina may have taken the idea of default a little too lightly.” (Reporting by Joan Magee; Editing by Marc Carnegie)