International banks are looking to put together a group of investors to buy disputed Argentine debt and resolve a U.S. lawsuit that is blocking the country from servicing any of its foreign bonds.
The banks are seeking investors willing to purchase bonds left over from the nation’s 2001 default held by firms led by Elliott Management Corp., said Eduardo Eurnekian, an Argentine billionaire who has been approached by bankers. While Elliott has a court order for full repayment, a banker familiar with the talks speculated the New York-based hedge fund would accept a settlement worth about 80 cents to 85 cents on the dollar.
At stake for the banks, which include Citigroup Inc. (C:US), is an opportunity to help Argentina resume payment on its bonds and regain access to overseas markets, bolstering the value of the debt and earning good will that could lead to underwriting business when the country starts issuing notes again. For now, Argentina finds itself back in default, having been forced to miss a $539 million interest payment last month on restructured bonds when a U.S. court ruled it couldn’t service those notes without also making good on its $1.5 billion debt with Elliott and other holdouts.
“The banks are working to try to bring people closer,” Eurnekian, who runs Corporacion America holding group, which manages businesses ranging from airports to energy, said in an interview on Radio Mitre. “It’s very complex. I don’t know how it gets resolved. It’s an issue for lawyers and financiers. But there’s no doubt that we want to fix this.”
In addition to Citigroup, JPMorgan Chase & Co. (JPM:US), HSBC Holdings Plc and Deutsche Bank AG (DBK) have also been in discussions with investors to resolve the dispute, according to a person familiar with the meetings who asked not to be identified because the talks are private. The banks are the four biggest underwriters of Latin American bonds in international markets this year, according to data compiled by Bloomberg.
Among the incentives for banks and outside investors to take part in a deal is the impact a resolution could have on the country’s restructured bonds. Those securities, which were issued in 2005 and 2010 to creditors holding 93 percent of the defaulted debt, would rally. Not only would a settlement allow the government to make the blocked interest payment, but it would clear the way for the country to begin issuing in international markets for the first time since 2001, giving it access to financing to shore up the government’s finances.
The banks may provide financing for a part of the debt purchases, according to the banker, who asked not to be identified because the discussions are fluid and subject to change. The deal has been difficult to complete because the buyers don’t know how much Argentina will eventually pay for the debt, the person said.
Danielle Romero-Apsilos, a Citigroup spokeswoman, and Robert Sherman, a spokesman at HSBC, declined to comment on the talks as did Veronica Espinosa, a spokeswoman for JPMorgan, and Ari Cohen at Deutsche Bank. Stephen Spruiell, a spokesman for Elliott, also declined to comment.
Eurnekian said in the radio interview that he’s willing to put up money to reach a deal. He also said other Argentine companies are willing to help fund the effort in a bid to keep their businesses from suffering the fallout from an extended default.
“It seems like everybody is trying to come up with an idea to resolve this problem,” said Tom Mullen, a partner at TWM Capital in Westport, Connecticut, which owns Argentine restructured bonds. “There is clearly an interest in getting a solution done but there’s so many different twists that it’s going to be difficult.”
Argentine benchmark bonds due 2033 had rallied 3.19 cents on the dollar in the three days through yesterday to 86.18 cents, paring their losses since the July 30 default, on speculation the banks will manage to pull off a deal. The notes slipped to 86.17 cents today as of 1:05 p.m. in New York. They traded at 95.57 cents the day before the default.
Peso forwards showing traders’ expectations for the currency in three months are headed for their biggest weekly increase since March, climbing 2.3 percent to 8.945 per dollar this week. The official peso was little changed at 8.2712 today.
President Cristina Fernandez de Kirchner, Economy Minister Axel Kicillof and other government officials call the hedge funds “vultures,” saying they prey on countries in distress and seek massive profits by squeezing governments through embargo attempts and lengthy litigation.
The South American nation says it can’t pay the holdout creditors more than the 30 cents on the dollar it gave to investors who agreed to the two restructurings. Still, Kicillof said as recently as Aug. 6 that the government wouldn’t oppose a third-party solution to its dispute.
One potential advantage for Argentina of a fix that doesn’t directly involve the government is avoiding having to improve terms for investors who restructured in 2005 and 2010. A rights upon future offers clause, known as RUFO, that was included as part of the debt restructurings bars the nation from making a better offer to the holdouts without also improving terms for those who accepted the original deals.
Violating the clause may trigger claims of more than $120 billion, according to Kicillof.
Munib Islam, a partner at Third Point LLC, said he’s bullish on Argentina’s prospects beginning next year as Fernandez leaves office because of term limits and as the government reaches a resolution in the Elliott case.
“We do remain bullish,” Islam, whose firm owns Argentine restructured debt, said on a conference call held by Third Point Reinsurance Ltd. “There are legal reasons why Argentina is unable to pay right now, but will happily pay post-New Year.”
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