Argentine Creditors Seek Names to Stop Deal-Killer Clause

Argentina creditors asked a U.S. judge to allow intermediaries to identify restructured debt holders, so the South American nation can seek their waiver of a clause that may scuttle any deal with holders of defaulted bonds.

While Argentina has said it’s seeking to negotiate with holdouts, the nation may be constrained by a “rights against future offers” clause that obliges it to extend any improved offer on defaulted bonds to holders of restructured debt.

Since restructured debt holders settled for about 30 cents on the dollar, they could cite the clause to demand equal treatment if a better offer is voluntarily made. Holdouts argued the move may be a ruse to circumvent the court and pay restructured debt holders.

U.S. District Judge Thomas Griesa in Manhattan last month blocked trustee Bank of New York Mellon Corp. from paying restructured bondholders $539 million it got from Argentina. The nation was barred by the judge from making those payments unless it pays defaulted bondholders in full. Griesa set July 22 as the next hearing in the bond battle, when he will rule on motions by both sides just one week before restructured holders must be paid, or Argentina faces its second default in 13 years.

Holders of euro-denominated bonds asked Griesa to allow clearinghouses including Euroclear SA to share bondholder information with Argentina so that the “RUFO” clause may be repealed, the investors said in a filing July 15.

RUFO Provision

“The potential triggering of the RUFO provision may be causing a chilling effect on settlement negotiations,” wrote Christopher Clark, an attorney for restructured bondholders. “It may be necessary, therefore, for Argentina to conduct a consent solicitation seeking a waiver of the RUFO provision by the exchange bondholders in advance of a potential settlement.”

In a July 15 letter to Griesa, holders of the defaulted bonds argued against allowing Argentina to be given bondholder information, saying it would make it easier for it to route payments to restructured bondholders outside his jurisdiction.

The current battle was triggered by the U.S. Supreme Court’s refusal to review the ruling by Griesa that restructured and defaulted bondholders be treated equally.

Investors have grown concerned that Argentina and the holdouts, including billionaire Paul Singer’s Elliott Management Corp., won’t reach a settlement to end their court fight before the grace period on blocked interest payments expires July 30.

Restructured dollar bonds due 2033 fell for a fourth straight day today, extending this week’s losses to 5.2 cents on the dollar, or 5.6 percent.

Elliott has said Argentina is refusing to negotiate, while government officials insist that U.S. courts must suspend the effect of the ruling before talks can start.

The case is NML Capital Ltd. v. Republic of Argentina, 08-cv-06978, U.S. District Court, Southern District of New York (Manhattan).

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