(Adds dropped word in paragraph 10)
By Joan Magee
NEW YORK, Aug 6 (IFR) - Holdout creditors are considering an
offer from international banks of 80 cents on the dollar for
their roughly US$1.66bn holdings of Argentine debt, sources
close to the negotiations said on Wednesday.
But Citigroup, Deutsche Bank, JP Morgan and HSBC, the four
banks involved, are said to be unwilling to absorb the entire
amount of debt in question, as they want holdouts to have reason
to keep participating in the drawn-out legal fight over the
bonds, the sources said.
After Argentina defaulted on previously restructured debt
last week, the holdouts now worry that if a deal is not reached
in timely fashion, the other bondholders could accelerate their
bonds - potentially leaving the holdouts with nothing to show
for a roughly decade-long legal fight to get payment in full
from the sovereign on their holdings.
At the same time, the banks that would purchase the debt are
looking for assurance that the sovereign would in turn make them
whole on the purchased bonds next year, after a contentious
so-called RUFO clause which Argentina says limits its ability to
pay the holdouts itself, expires.
But any implied or explicit guarantee of full payment could
be construed as a violation of the clause.
"The banks have so far received no guarantees from the
government that they might get better terms than those offered
in the 2005 and 2010 restructurings once the RUFO clause
expires," said an investor. "Such a guarantee would be required
by the banks to complete a deal."
At 80 cents on the dollar, the banks would be putting up
around USD1.32bn, of which a certain percentage would be held by
holdouts. With accrued interest, the total amount Argentina
would owe on the holdout bonds would be around USD1.75bn.
Talks last week with local Argentine banks had fallen
through right before the South American sovereign defaulted, but
there had been discussions around an initial payment of USD200m,
then another USD300m and USD100m before the end of the year, one
source said, and any deal now could have similar parameters.
Banks might have to take it on faith that Argentina won't
engage in any financial engineering with the holdout debt after
the RUFO clause expires on December 31.
"(Holdouts) are petrified that par bondholders would
accelerate," said an investor close to the talks. "That would
leave them in a no-win position. But at the same time this is a
fund whose mandate is to aggressively litigate and secure close
to par on all of its claims."
The holdouts may have some breathing space. Another person
close to the negotiations said that the holdout firms realize
that any acceleration has to go through trustees - in this case
the Bank of New York Mellon - and would take "a minimum of a
But one of the sources said what appeared to be the strong
position of the holdouts, who were backed by the US courts, was
"What the holdouts are really nervous about is their loss of
leverage," that source said. "The nuclear option of Argentina
defaulting has already happened. It's clear to me that the
balance of power has shifted from the holdouts."
Beyond the international banks, Brazilian entities including
state-owned Caixa Economica Federal and development bank BNDES
are also entering the fray in order to stem the market contagion
from the Argentine default.
JP Morgan, Deutsche Bank and Citigroup declined to comment,
while HSBC was not immediately available for comment.
(Reporting By Joan Magee; Additional reporting by Davide
Scigliuzzo; Editing by Paul Kilby and Marc Carnegie)