Argentine Bonds Gain on Wagers for Settlement With Singer

President Cristina Fernandez de Kirchner
Ten days after President Cristina Fernandez de Kirchner said Argentina will seek a negotiated solution with holdout creditors, public statements from both sides indicate they are making little progress. Photographer: Juan Mabromata/AFP via Getty Images

July 1 (Bloomberg) -- Argentine bonds rallied, snapping a three-day losing streak, as the government’s plans to meet with a mediator in its conflict with holdout creditors bolstered speculation a settlement can be reached to prevent a default.

Government bonds due 2033 rose 2.2 cents to 85.44 cents on the dollar at 12:43 p.m. in New York, pushing the yield down 0.34 percentage point to 10.23 percent. The notes had fallen from an almost three-year high over the past week as investors pared wagers that the country would reach an accord to end a decade-long dispute with holders of defaulted debt.

Optimism was rekindled late yesterday when Argentina said it will send a delegation July 7 to meet with court-appointed mediator Daniel Pollack. A U.S. judge has blocked the nation from paying interest on its performing bonds until it transfers $1.5 billion to creditors led by billionaire Paul Singer’s NML Capital who didn’t tender their bonds in restructurings after the country’s $95 billion default in 2001.

“There is an underlying positive trend that produces prices jumps when good news hit the wire,” Jorge Piedrahita, the chief executive officer of Torino Capital LLC, said in an e-mail. “Argentina will do the right thing but probably only when it is against the wall.”

Since President Cristina Fernandez de Kirchner said June 20 that she would seek a negotiated solution to the conflict with creditors holding defaulted bonds, her government published advertisements in the New York Times and Financial Times vilifying U.S. District Judge Thomas Griesa for his ruling that blocked the nation from making a $539 million payment on the 2033 debt.

‘Confrontational’ Strategy

Jay Newman, a money manager at NML, said today in an interview on CNBC that while he’s aware of the nation’s scheduled meeting with Pollack, there’s no sign the country will meet with the holdouts for talks.

He reiterated his hedge fund’s desire to negotiate and said a successful settlement offer could include a mixture of cash and bonds, similar to the nation’s deals with the Paris Club group of creditors and the accord to compensate Madrid-based Repsol SA for the seizure of its Argentine unit.

“The government’s public strategy remains confrontational at times, but we think that much of this is driven by political concerns and attempts to improve its negotiating position,” Casey Reckman, an economist at Credit Suisse Group AG wrote in a note today. The meeting with Pollack “is an important step in the rational direction.”

To avoid its second default in 13 years, Argentina has to reach a deal by July 30, the date that the grace period on the interest payment expires.

‘Broken Promise’

While Argentina was able to restructure 92 percent of the debt it defaulted on in 2001, the remaining creditors refused to take losses of about 70 percent, terms that Fernandez calls the harshest ever for sovereign investors.

A clause in the restructured bonds, which expires Dec. 31, prevents the nation from voluntarily making a better offer to holdouts without making the same offer to exchange bondholders.

Griesa called Argentina’s deposit into the account of indenture trustee Bank of New York Mellon Corp. “illegal’ and a ‘‘disruption’’ to talks. He told BNY Mellon to return the funds and urged the parties to reach a settlement.

Mark Brodsky, chairman of hedge fund Aurelius Capital Management LP, which is also demanding payment for defaulted bonds, said today that he’s skeptical of Argentina’s meeting.

‘‘I predict Argentina will not send a delegation to the Special Master next week, or will send one without any authority to depart from the prior exchange offer terms,” he said in a statement. “Argentina’s government seems determined to plunge the country into a completely avoidable crisis on July 30.”

Default Swaps

It costs $3.4 million in advance and $500,000 a year to insure $10 million of debt against default for five years with credit default swaps, according to CMA. While the cost is down from $3.7 million yesterday, it’s still the highest in the world.

The U.S. Supreme Court on June 16 left intact a lower court ruling that Argentina can’t make payments on the restructured bonds without also paying holders of the defaulted bonds in full. Argentina says if it complies with the ruling, it would be subject to $15 billion of similar claims, or more than half of the nation’s international reserves.

Since October, Argentina has settled claims with five companies in the World Bank’s arbitration arm, reached the Paris Club accord and hammered out the deal with Repsol.

Overseas Financing

A settlement with holdout creditors would be the last major obstacle to accessing international financing.

NML had said June 24 that if there’s “good progress” in the talks, it may support a way for Argentina to pay the bonds by July 30. Pollack, the court-appointed special master, said last week there had been no progress.

Edwin Gutierrez, who helps oversee $13 billion at Aberdeen Asset Management Plc, including Argentine bonds, said the government and holdouts probably will reach a deal as the end of the grace period draws near.

“This gets resolved but it gets resolved on July 30, and anyone who expected this to happen tomorrow or yesterday were being naive,” Gutierrez said in a telephone interview from London. “They’ll have to pay Elliott. There’s no way around it.”

To contact the reporters on this story: Camila Russo in Buenos Aires at crusso15@bloomberg.net; Katia Porzecanski in New York at kporzecansk1@bloomberg.net

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net; David Papadopoulos at papadopoulos@bloomberg.net Daniel Cancel