With negotiations expected to drag on all night, representatives of the ADEBA national private bank chamber jetted off to New York yesterday evening in an unexpected move to offer holdout hedge funds a last-ditch proposal that would allow Argentina to avoid a technical default ahead of today’s debt repayment deadline.

Wednesday, July 30, 2014

Last roll of dice to avoid default

Economy Minister Axel Kiciloff, left, arrives in New York for negotiations to discuss a resolution to Argentina''s debt conflict with US hedge funds in an attempt to avoid a default ahead of today’s deadline.

Economy Minister Axel Kicillof and banker Jorge Brito’s ADEBA make last minute trip to NY

With negotiations expected to drag on all night, representatives of the ADEBA national private bank chamber jetted off to New York yesterday evening in an unexpected move to offer holdout hedge funds a last-ditch proposal that would allow Argentina to avoid a technical default ahead of today’s debt repayment deadline.

Led by Macro bank CEO Jorge Brito, ADEBA reportedly was to submit an offer either to make a US$250 million escrow deposit for the US$1.33 billion owed to the holdouts, or to take all of the bonds out of the holdouts’ hands

Hours before the news broke, Economy Minister Axel Kicillof unexpectedly arrived in New York to join the last-minute debt talks to avoid a default.

Kicillof’s appearance at the office of the court-appointed mediator presiding over the negotiations was his first in more than three weeks. The scant progress made in talks, and Kicillof’s absence, had raised questions over Argentina’s commitment to reaching a settlement with the holdouts.

The minister, who this year brokered deals with the Paris Club of creditor nations and Spanish energy giant Repsol, made no comment to reporters staking out Pollack’s office.

Both the escrow deposit or full bond acquisition avenues would allow for the distribution of the US$539 million deposited by Argentina to bondholders who took part in last decade’s debt swaps.

The funds were frozen by Judge Thomas Griesa, whose ruling on the credits’ pari passu, or equal treatment, clause that holdout hedge funds must be paid parallel to restructured repayments. Argentina then had a 30-day grace to make the payment effective, which expires today.

Unconfirmed reports indicated the Central Bank Governor Juan Carlos Fábrega had given his nod for the bankers to make the offer, although the chamber has no official or unofficial link to the government. An offer from ADEBA would therefore not trigger the pivotal Rights Upon Future Offers (RUFO) clause, through which restructured creditors could demand equal terms to any offered to the “vulture funds.”

There was also talk of the Central Bank subsequently dealing with the cost of the debt directly with ADEBA, which groups together national private banks, and also the capital’s Banco Ciudad as of a few weeks ago.

The chamber includes Brito’s Macro, Banco Galicia and Banco Patagonia, among others.

Conclave of bankers

Financial sources told the Herald that Brito summoned a meeting with his counterparts yesterday to discuss a potential disbursement of US$250 million as either an escrow deposit or the acquisition of the hedge funds’ bonds, primarily those in the hands of Paul Singer’s NML Capital.

If ADEBA does not buy the totality of the bonds for US$1.650 billion, the amount plus interests demanded by Griesa, the agreement would be for NML to request a stay until September, the next bond repayment date for the government.

Singer’s fund said in June and earlier this month that it would cooperate in requesting a stay on the condition that negotiations “have made good progress.”

Brito’s Macro will reportedly fork out US$100 million, and sources told the Herald that Banco Ciudad was the most vocal supporter of the idea.

Defining a stance was trickier for Banco Patagonia, whose majority stake is held by Brazil’s state-controlled Banco do Brasil, implying the institution has to respond to the neighbouring country’s political decisions.

Banco Ciudad’s keeness to contribute is largely explained by Buenos Aires City Mayor and presidential hopeful Mauricio Macri’s bid to portray himself as a problem solver.

However, a dispute over the rights to boast for having resolved the issue would likely unfold, as Brito has been linked with Renewal Front leader and 2015 candidate Sergio Massa over the last year.

The benefits

Logically the banks were said to view the issue in terms of investment as well, considering that its own shares and bonds would see significant losses in the face of a new default.

In putting up the cash, they would face the risk of the government deciding not to compensate them or opting to lift the escrow after January, when the RUFO clause expires.

Brito, who has previously held close ties with both the Carlos Menem and Néstor Kirchner — marked by ups and downs — and Cristina Fernández de Kirchner administrations, certainly held his cards close to his chest until the last minute.

Only nine days ago, asked by Ámbito Financiero about what would happen in the event an agreement was not reached by today, the the powerful banker said “nothing will happen.”

“It wouldn’t be cost free, but markets have been developing favourably due to expectancy over a change in 2015,” he said.

Euro bondholder support

As negotiations — beginning at midday, breaking for two hours and continuing into the night with Kicillof — took place, holders of Argentina’s euro-denominated exchange bonds earlier urged US District Judge Thomas Griesa to facilitate a settlement by suspending his ruling.

The veteran North American judge previously rejected Argentina’s request for a stay, but he could respond differently to bondholders.

In a potentially final legal manoeuvre, Argentina appealed a portion of an order from Griesa on Monday permitting Citibank to pay certain bond holders with funds deposited with the bank by the Argentine government.

The appeal appears to take issue with Griesa’s warning that his order permits Citi only to make the next scheduled payment today but not subsequent ones.

Herald staff with Reuters

— Negotiations with Pollack started at midday, breaking for two hours and continuing into the night with Kicillof.

— Both the avenues of an escrow deposit or a full bond acquisition by banks would allow for the distribution of the currently frozen default-triggering US$539 million deposited by Argentina to bondholders who took part in last decade’s debt swaps.

— Banco Ciudad’s keeness to contribute is seemingly explained by Buenos Aires City Mayor and presidential hopeful Mauricio Macri’s bid to portray himself as a problem solver.

— The Massa-leaning Brito will reportedly fork up US$100 million through Macro.

— If a comprehensive agreement wasn’t reached, NML was to request a stay until September to allow for further talks.