By Joan Magee and Davide Scigliuzzo
NEW YORK, July 30 (IFR) - Last-ditch efforts by Argentina's
local banking association Adeba to act as a white knight in
talks with creditors has raised hopes the country can avoid a
second default in 13 years.
Economy Minister Axel Kicillof was in New York meeting face
to face with holdout creditors amid hopes that an offer from
Argentine banks to stump up cash in escrow could save the day.
Negotiations are now revolving around how much local banks
need to deposit as a goodwill gesture to give Adeba time to
negotiate a way to pay holdouts themselves. By having banks
satisfy such claims instead of Argentina, the government may
find away around the so-called RUFO clause.
Argentina argues that the so-called RUFO (Rights Under First
Offer) clause prohibits it from voluntarily paying the holdouts,
who are demanding full payment on their bonds, better terms than
the 25 to 29 cents on the dollar the other investors accepted.
"The RUFO clause has become Argentina's straw horse," said a
source close to the talks.
"They're so paranoid about the RUFO clause and want to
figure out a way where they can avoid default and not violate
the RUFO. From their perspective, it's a possible solution."
Argentina fears that it may face billions of dollars of
claims from investors who accepted the restructuring should it
pay the holdouts in full.
The apparent hope is that funds provided by local banks
would get around the legal technicalities of the clause - and
appease holdouts enough that the US courts allow a debt payment
of its restructured bonds to go through and avoid a default.
The grace period for that payment expires at midnight on
Local Argentine press outlets reported that domestic banks
are willing to deposit US$250m-US$300m in an escrow account to
help get a deal done.
At the moment, both sides are trying to determine whether
that amount is large enough to act as a goodwill gesture, and
that depends on estimates over the size of any potential
liabilities in the event that the RUFO clause is exercised, the
That tally is being estimated as somewhere between US$6bn to
US$20bn, according to both analysts and sources close to the
On the higher end, RUFO liabilities would include notional
amounts outstanding for the restructured bonds, both the Pars
and Discounts under New York law and dollar-denominated and
Argentine law dollar-denominated bonds. Of that, New York-law
bonds account for around US$12bn.
Should a deal be hammered out today, Argentina would in
theory have time to figure out how to avoid any RUFO claims
before the clause expires at the end of the year, or to collect
enough waivers from bondholders to make the clause obsolete -
something that certain holders have already proposed this week.
Amid all the last-minute horse-trading, Argentine debt has
The Discount 2033 notes were trading up as much as 8 points
today at 92.25, while the Par 2038s rose by around 4 points to a
bid price of 51.75, said traders.
Its Bonar 2024s were trading up 6.5-7.0 points this morning
to 99.00-100.00, one trader in New York said.
"The bonds are moving so quickly that we have no idea where
they will end up now that Axel is in town," the
trader said. "He's the one who is seen as the dealmaker, and the
one who makes the decisions."
Argentina's five-year credit default swaps were quoted 321bp
tighter on the day at a spread of 1574bp, with other traders
seeing it as tight as 1554bp.
"The failure to broker a deal will question whether the RUFO
is the only concern and hence suggests more downside risk
post-default," said Siobhan Morden, head of LatAm strategy at
(Reporting by Davide Scigliuzzo and; Joan Magee; Editing by
Paul Kilby and Marc Carnegie)