(Adds Argentine financial market levels, local analyst quote)
By Joan Magee
NEW YORK Aug 12 International banks are
struggling to reach a deal to buy a chunk of Argentine sovereign
debt held by New York hedge funds suing the country, sources
close to the negotiations said on Tuesday.
Citigroup, Deutsche Bank, HSBC and
JP Morgan entered into talks with the funds to help
Argentina swiftly exit its second default in just over a decade,
which occurred as a result of a drawn-out legal battle with the
Sources told Thomson Reuters IFR that the banks last week
offered the holdout hedge funds 40 cents on the dollar for the
roughly $1.66 billion of bonds, including interest, and raised
the offer to 50 cents on Monday.
That price is far below the 80 cents first proposed last
The hedge funds, led by Elliott Management Corp and Aurelius
Capital Ltd, originally bought the bonds on the cheap during and
after the country's 2001-2002 economic crash and are demanding
payment at face value.
"These are not fully-baked proposals," a source from one
holdout firm told IFR.
Local Argentine bonds fell on the day and the peso currency
weakened on pessimism over a potential deal.
"Just when it looked like we might see a deal with the
holders of the defaulted bonds, it vanished," said a research
note from Buenos Aires brokerage Allaria Ledesma and Co.
The peso lost 1.2 percent in black market trade to
12.95 per U.S. dollar while the country's locally traded
discount bonds dipped 1.5 percent to 84.25 and the
Par bond fell 1.6 percent to 51.45.
If the debt crisis drags on, it will put more pressure on
Argentina's thinning foreign reserves and an ailing currency.
Argentina's latest debt crisis stems from its record $100
billion default in 2002. It successfully restructured most of
that debt in bond swaps that gave investors less than 30 cents
on the dollar. But the holdouts went to court for full payment.
In 2012, a U.S. judge, Thomas Griesa, ruled Argentina could
not repay holders of restructured debt without also paying the
hedge funds at the same time.
The Buenos Aires government says it met its obligations to
holders of exchanged debt when it deposited $539 million into
the account of an intermediary bank for a June 30 coupon
payment. But Griesa called the deposit illegal and blocked it.
Argentina also argues it cannot strike any deal that offers
terms better than the large haircut accepted by the majority of
creditors, because of a legal clause in the bond swaps. That
clause, known as RUFO, expires at the end of this year.
Analysts say the banks may be nervous about what sort of
reassurance they can obtain from Argentina that it will buy the
debt back from them, and at what price.
"Our insecurity and the insecurity of the banks has been
that the government hasn't given any indications regarding price
points or structure once January hits," a source close to the
(Additional reporting by Davide Scigliuzzo of Thomson Reuters
IFR in New York and Walter Bianchi in Buenos Aires; Writing by
Richard Lough and Hugh Bronstein in Buenos Aires; Editing by