NEW YORK, Aug 8 (IFR) - Holdout creditors are considering an
offer from international banks of 80 cents on the dollar for at
least part of their holdings of about US$1.66bn
of Argentina debt, but the road to any deal will be fraught with
Sources close to the situation said that Citigroup, Deutsche
Bank, JP Morgan and HSBC, the four banks involved, are 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 sovereign's obligations.
The banks may, nonetheless, be willing to buy some of the
holdout creditors' debt, possibly as part of a wider consortium
that they will put together.
It is unknown if an eventual agreement would include all
four banks, or only some of them, one source said - though all
are in intense negotiations over the securities in question.
One factor making a deal more likely is that, since
Argentina defaulted on previously restructured debt on July 30,
other bondholders could accelerate those bonds. That could
potentially leave the holdouts, who refused the restructuring
deal that the others accepted, with nothing at all to show for a
roughly decade-long legal fight to get payment in full from the
This is because an acceleration would mean the holdouts
become just another set of creditors seeking full payment rather
than being at the front of the queue as they were before
Argentina's latest default. The holdouts are led by Aurelius
Capital and NML Capital.
" are petrified that par bondholders would
accelerate," said an investor close to the talks. "That would
leave them in a no-win position."
At the same time, banks that end up buying the holdouts'
paper will be looking for assurances that the sovereign will
repay the bonds they buy at par next year, after the expiry of a
so-called RUFO clause, which Argentina has used as reason for
not paying the holdouts.
But any guarantee of full payment, implied or explicit,
could potentially be construed as a violation of the clause,
which could open Argentina up to a raft of new claims - for up
to US$29bn - as bondholders who took part in previous
restructurings demand the same payment terms as the holdouts
The sovereign has repeatedly cited the clause in its battles
in the US courts.
"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 the investor. "Such a guarantee would be required
by the banks to complete a deal."
At 80 cents on the dollar, payment on the current US$1.66bn
claim would come to around US$1.32bn, but a certain percentage
of the debt is expected to remain in the hands of the holdouts.
How much banks cover remains unclear, but talk has them taking
as little as 25% of the entire claim, which will grow to around
US$1.75bn by January.
Citigroup, Deutsche Bank, JP Morgan and HSBC declined to
DISORDER IN THE COURT
Another piece of this confusing puzzle is US judge Thomas
Griesa, who ruled in 2012 that Argentina could not make any more
payments to the holders of its restructured debt until it made
the holdouts whole. Griesa put a stay on that ruling to allow
Argentina to appeal against it.
After the US Supreme Court declined to hear the appeal
several weeks ago, Griesa lifted the stay and then ordered
trustee banks not to release Argentine funds for the
restructured coupon payments if the holdouts were not paid too.
Any deal now that sees international banks buy up the
holdouts' paper would theoretically mean getting Griesa to
somehow suspend those previous orders - at least until the end
of 2014, when the RUFO clause expires.
This would ostensibly allow for Argentina to make the
payment on the restructured bonds within a 60-day window, which
could vanquish the threat of cross-default on all New York law
bonds and allow Argentina to cure its latest default.
But that is quite a lot of "maybes" and "ifs". And in the
meantime a whole new threat has emerged from "me-too" claimants
- creditors who have not taken part in the holdouts' legal
battle against the sovereign yet who also did not accept the
2005 and 2010 debt restructurings.
Some of these claimants have already filed a motion through
law firm Proskauer asking Griesa to extend them the pari passu
protection that he has provided for NML and others, according to
a letter seen by IFR.
Jan Dehn, head of research at Ashmore Management in London,
said the combined claims of current plaintiffs and the me-toos
was "about US$15bn, which is more than half of Argentina's FX
"Griesa could conceivably grant a new injunction to the
me-too claimants before 2015, which would bring us back to
square one," the lawyer said.
The prospect of starting a decade-long litigation all over
again will appeal to absolutely no one, of course - which also
should mitigate in favour of some kind of deal being reached.
While these many moving parts are confusing, the market
tended towards optimism that a deal with holdouts could be
struck, with the country's bonds rallying this week.
The Discount 2033 notes jumped by three price points on
Wednesday and by another 2.5 points on Thursday to a cash price
The Par 2038 notes rose from 52.75 at the open on Wednesday
to as high as 55.50 on Thursday.
(Reporting By Joan Magee; Davide Scigliuzzo; Editing By Marc
Carnegie, Paul Kilby and Matthew Davies)