* Argentina closer to negotiations with holdouts
* Bonds reverse losses after talks announced
* Swap proposal seen as difficult solution
By Paul Kilby and Davide Scigliuzzo
NEW YORK, June 18 (IFR) - Argentina appeared to be inching
closer to a negotiated settlement today with litigant investors
who are seen having a legal stranglehold on a sovereign that has
few options left to avoid a technical default.
The country's bond prices have seen some dramatic dips in
recent days but prices largely ended higher Wednesday on news
that Argentine government officials would begin talks with
holdouts next week.
Par bonds were ending the day about four points higher at
44.75-45.25, while discounted bonds rallied a good two points to
close at 77.00 mid market. "Everyone will be waiting to see how
negotiations go," said a trader. "It may give them some time and
that is what they need right now."
With the US Supreme Court rejecting Argentina's petition to
appeal rulings favoring holdouts, the government has until a
June 30 coupon payment on the discounts to reach a settlement.
If it can't, it will be forced to pay both holdouts and
restructured bond holders or default on all its New York law
In theory, the government could push that deadline out
another 30 days if it uses the grace period. But solving the
payment problem over the next month or so was made all the more
urgent today after the Second US Circuit Court of Appeals lifted
a stay on a judge's order to pay US$1.33bn to NML Capital, and
other litigant investors.
The government needs time and could create some extra
breathing space by asking Judge Thomas Griesa for a stay beyond
June 30, or alternatively approaching exchange bond holders and
convince them that they are willing to pay but require a standby
agreement to negotiate further with holdouts, say lawyers.
Plans announced by Economy Minister Axel Kicillof last night
to change the jurisdiction of restructured debt was seen more as
a way of showing such willingness rather being a viable
That's because participation rates on any such exchange are
likely to be low as many investors would be reluctant to be seen
skirting an earlier ruling by judge Griesa, say market
participants. Griesa reiterated his position today saying that
the swap proposal would violate prior orders, according to
"We don't own any New York-law bonds at the moment, but if
we did, we would have to see exactly what the structure of the
proposal would be and run it though our lawyers to make
sure we are not violating [the injunction]," said a New
Lawyers echo such sentiment. "It is hard for me to imagine
that any of the parties involved would risk a contempt citation
by assisting Argentina in evading Judge Griesa's order," said
Antonia Stolper, head of the Latin America practice at law firm
Shearman & Sterling.
Should the government carry out its plans to launch an
exchange of New York law bonds for instrument with a local
jurisdiction investors will be faced by a stark choice. Either
accept an instrument without the protection of US court, but get
paid. Or keep a bond and be defaulted on once again.
Some on the buyside see the swap proposals as little more
than a negotiating tool to demonstrate that it has other
options, however weak.
"No one would do that exchange," said an investor involved
in Argentine debt. "Argentina wants to negotiate and show it has
a carrot and a stick, but it is a very small stick."
Others see little use in participating ahead of a general
election next year that some speculate could see the government
of President Cristina Fernandez de Kirchner replaced with a more
market friendly administration.
"You have to assume that any new administration 18 months
from now will be more logical and that they will go back to
holders of New York law bonds pay the penalty and continue
serving the bonds," said an investor involved in Argentina debt.
"Once the holdout issue is resolved local law bonds will be
worth less than New York law ones."
While most legal experts think that Argentina can get around
a RUFO clause that prohibits it from offering different terms to
the holdouts, the idea that litigant investors and the Kirchner
government can meet half way and solve the decades old legal
battle is still being met with much skepticism.
"Both sides have really dug in their heels," said Peter
Lannigan, head of EM strategy at CRT Capital Group. "It is going
to be challenging for them to avoid default."
(Reporting By Paul Kilby and Davide Scigliuzzo; Editing by