(Adds Aurelius comment, details on deposit, background)
By Daniel Bases
NEW YORK, July 1 Argentina's past deals to
settle claims with Spanish oil major Repsol and the Paris Club
of creditor nations could serve as examples of how to negotiate
a settlement to a decade-old debt dispute, one of the lead
holdout bondholders said on Tuesday.
Both of those deals, in total worth about $15 billion,
allowed Argentina to preserve its dwindling foreign currency
reserves, which stand at $28.5 billion.
Argentina faces a potential default unless it reaches a deal
with holdout investors by July 30 when it must make a payment on
its restructured sovereign debt. The holdouts rejected previous
restructuring deals Argentina offered after it defaulted on
about $100 billion in 2001-2002.
"In the case of the Paris Club, and this is quite important
and illustrative, Argentina recognized after also about the same
amount of time we have been dealing with our claims, recognized
the total claim of the Paris Club, principal, interest, and
penalties and agreed to settle it by paying a portion in cash
and the bulk of it in bonds," Jay Newman, senior portfolio
manager at Elliott Management, one of the lead holdouts in the
sovereign debt dispute with Argentina, told CNBC TV.
Argentina was ordered in 2012 to pay the holdouts, led by
Elliott Management Corp, and Aurelius Capital Management $1.33
billion plus accrued interest by U.S. District Court Judge
Thomas Griesa in New York.
Argentina must pay holdouts at the same time it pays
investors who accepted restructurings in 2005 and 2010. His
ruling was upheld on appeal and denied a hearing by the U.S.
Supreme Court, effectively exhausting Argentina's U.S. legal
A deal with the holdouts would be the final element in a
campaign by the government to clear up its arrears and allow it
to re-enter the international capital markets for desperately
needed cash to help fund development, especially the 1,000-foot
thick Vaca Muerta shale oil and gas field in Patagonia.
Economy Minister Axel Kicillof in recent months agreed a
settlement with Repsol SA under which his government
issued $5 billion worth of bonds to compensate it for
Argentina's seizure of its YPF subsidiary. Those bonds are
governed by Argentine law, putting them out of the reach of U.S.
This ended a two-year dispute but was 50 percent of what
Repsol had originally demanded for the seizure. The bonds were
later sold by JPMorgan with the cash going to Repsol.
Kicillof settled arrears of nearly $10 billion with the
Paris Club by agreeing to make payments in cash installments.
Paris Club rules forbid any reduction in the value of the
country's debt without a program under the auspices of the
International Monetary Fund, something Argentina would not
Argentina is sending an unnamed delegation to New York on
July 7 to meet with a court-appointed mediator, or so-called
special master, but did not say if it would meet face-to-face
with the holdouts.
On Monday, Newman complained Argentina had not met with the
him or the other holdouts. Argentina announced the delegation's
trip to New York several hours later.
In a statement issued on Tuesday, Mark Brodsky, the chairman
of Aurelius Capital Management, remained skeptical.
"I predict Argentina will not send a delegation to the
Special Master next week, or will send one without any authority
to depart from the prior exchange offer terms. Either way,
Argentina's government seems determined to plunge the country
into a completely avoidable crisis on July 30," Brodsky said.
Argentina says it cannot voluntarily offer better terms for
a restructuring with holdouts because of a provision called the
Rights upon Future Offers (RUFO), which expires on Dec. 31. It
is designed to stop anyone getting a better deal than the
Last week Argentina defied Griesa and made a scheduled
coupon payment of $539 million due June 30 (with a 30-day grace
period) on restructured bonds, saying it was bound by Argentine
law to make the payment.
The money was deposited in the Bank of New York Mellon's
account at the Central Bank of Argentina without making the
court-ordered payment to holdout investors at the same time.
Griesa said the deposit was illegal and the money should
"simply" be returned to the Republic.
That deposit, made up roughly of $232 million and 225
million euros ($308 million) has not moved from the account
because no formal order has been issued by Griesa to return it
to the government, said sources familiar with the situation. The
sources spoke on condition of anonymity given the unsettled
legal matter, saying "this is a fairly unique situation."
The cost to insure a portfolio of Argentine sovereign debt
dropped on Tuesday, after a steady climb in the past week. An
investor wanting to insure a $10 million trade for one year
would need to spend $2.77 million as an up front cost plus an
additional $500,000, according to data provider Markit. Late on
Monday the up front cost was $2.92 million.
(1 euro = $1.3687)
(Additional reporting by Hugh Bronstein in Buenos Aires;
Editing by Chizu Nomiyama, W Simon and Andrew Hay)