UPDATE 1 – Argentina holdouts considering 80 cents on dollar – sources
06 August 2014 By Joan Magee
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 a 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 US$1.32bn, 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 US$1.75bn.
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 US$200m, then another US$300m and US$100m 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 month”.
But one of the sources said what appeared to be the strong position of the holdouts, who were backed by the US courts, was weakening.
“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.
Additional reporting by Davide Scigliuzzo
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