Argentine Bonds Fall as Default Deadline Looms With No Progress

Argentine bonds dropped to a one-month low as the nation rejected direct talks with creditors in a conflict over defaulted bonds that’s threatening to force it to renege on payments for a second time since 2001.

Government bonds maturing in 2033 fell 2.23 cents to 81.99 cents on the dollar at 4:45 p.m. in Buenos Aires, the lowest level since June 20, according to data compiled by Bloomberg. Yields jumped 0.36 percentage point to 10.77 percent.

“The securities are under pressure from a lack of any visible progress and negotiations,” said Michael Roche, a fixed-income strategist at Seaport Global Holdings LLC. “It’s going to be two nerve-wracking days.”

While Argentine officials have met with court-appointed mediator Daniel Pollack four times in New York since having a debt payment blocked on June 30 by a U.S. court for not complying with a ruling to pay defaulted-bond holders when servicing its restructured debt, the government has refused to hold face-to-face meetings with creditors including billionaire Paul Singer’s Elliott Management Corp. A delegation led by Finance Secretary Pablo Lopez will meet with Pollack tomorrow, a day before a 30-day grace period expires, and insist on a delay of the ruling, Cabinet Chief Jorge Capitanich said.

“Argentina will look to reinstate a stay,” Capitanich said today during a press conference in Buenos Aires. “All negotiations take time.”

The Argentine delegation will meet with the mediator tomorrow at 11 a.m. in New York, Pollack said today in an e-mailed statement.

Won’t Happen

“I again urged direct, face-to-face conversations with the bondholders, but that will not happen tomorrow,” he said. Pollack said in a separate statement he’s urging greater communication “in view both of the gravity of this situation and the shortness of time to resolve it without default.”

Argentina will default on restructured debt if it doesn’t reach a deal with a group of holdouts or obtain a court delay by July 30. U.S. District Court Judge Thomas Griesa, who ruled that Argentina must pay the holdouts $1.5 billion when paying its exchange debt, ordered the nation and hedge funds to hold “continuous” talks with Pollack to find a negotiated resolution.

“The chances of a settlement being reached by 30 July are extremely low,” Casey Reckman, an economist at Credit Suisse Group AG, wrote in a research note to clients. “The only way for default to be avoided is if the plaintiffs ask Judge Thomas Griesa for a stay.”

‘Wholly Undeserving’

Elliott, a New York-based hedge fund that sued for better terms than previous debt swaps, has said it would support a way for Argentina to continue making bond payments only after making progress in talks. Aurelius Capital Management LP, a hedge fund that sued alongside Elliott, has said the country is “wholly undeserving of another stay.”

Both have said they’re willing to reach a negotiated resolution and that Argentina hasn’t been willing to talk.

In Buenos Aires, the black market peso tumbled 3.1 percent to 13 pesos per dollar, near the record low of 13.06 reached on Jan. 23 after a devaluation, according to prices compiled by Argentines turn to the black market to obtain foreign currency when they can’t get authorization to buy at the official rate of 8.1820 due to capital controls.

Argentina’s Merval benchmark stock index fell 1.3 percent to 7,816.54, the lowest in a month.

The South American nation’s debt is the most expensive in the world to protect against non-payment over one year using credit-default swaps and more than four times the cost of Ukraine, the second-highest.

RUFO Clause

While the cost to protect the nation against non-payment is the highest in the world, bond prices are holding up on speculation that President Cristina Fernandez de Kirchner might be able to swap investors into local-law bonds outside of Griesa’s jurisdiction, and thus continue paying if there’s a default.

Fernandez’s government says it is constrained from reaching an agreement now since it could violate a Rights Upon Future Offers clause in the bond contracts. That clause prohibits the government from making any better offers to creditors before Dec. 31 2014, without extending the terms to exchange bondholders.

A group of creditors holding 5.2 billion euros ($7 billion) of Argentine bonds is willing to waive the RUFO clause, according to a letter obtained by Bloomberg. The letter, dated July 26, was sent to attorneys for Argentina and Pollack.

“We have identified a substantial number of bondholders who would be willing to waive the RUFO clause,” the letter said. “In order for that to happen, however, the Republic must not be in default and must be given a reasonable period to conduct a consent solicitation complying with the securities laws of the U.S., U.K., Japan, and Argentina.”

After Argentina defaulted on a record $95 billion in 2001, about 92 percent of creditors agreed to restructurings in 2005 and 2010 that implied losses of about 70 percent.

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