Argentina Euro Bondholders Cite Waiver in Bid for Delay

Holders of Argentine Euro bonds filed an emergency request that a U.S. judge halt litigation over the South American nation’s defaulted bonds, citing an agreement by some debt-holders to waive a key clause as justification to allow settlement talks extra time.

Argentina faces a possible bond default tomorrow with the expiration of a 30-day grace period to pay restructured bonds. U.S. District Judge Thomas Griesa previously ruled that the country can’t pay that debt unless it also pays more than $1.5 billion to holders of its defaulted bonds.

The Euro bondholders, who aren’t involved in a suit by hedge funds led by billionaire Paul Singer’s NML Capital, said holders of more than 5.2 billion euros ($6.97 billion) of restructured bonds agreed to waive a key provision in their contracts. Argentina warned the provision may allow those bondholders to claim billions of dollars more if it pays off defaulted bondholders such as NML, and is s major obstacle to a settlement.

The Euro bondholders asked Griesa for a delay of at least 90 days in enforcing his orders in hopes of “opening up a path to settlement,” one that may be more easily obtained given the waiver of the rights upon future offers, or RUFO, clause.

Argentina, while having previously requested Griesa stay enforcement of his order that defaulted bondholders be paid, hasn’t made a similar emergency request. An Argentine delegation of government officials and court-appointed mediator Daniel Pollack were meeting today in New York. David Brooks, a spokesman for Pollack, declined to comment.

Record Default

Argentina defaulted on a record $95 billion in debt in 2001. About 92 percent of creditors agreed to exchange their bonds for new ones, at a discount of about 70 percent, in debt restructurings in 2005 and 2010. Many of the holdouts, including NML, sued, seeking full payment in Griesa’s court.

Argentina claims the RUFO clause in the restructured bonds may allow their holders to claim full payment if the country pays NML and the other holdouts. The clause obliges it to extend any improved offer on defaulted bonds to holders of restructured debt.

The holdouts contend the clause, which expires at the end of this year, only applies to voluntary offers, not payments made in compliance with a court order.

Argentine discount bonds due 2033 rose 0.35 cent to 84.22 cents on the dollar at 5:15pm in Buenos Aires, erasing earlier losses. Argentine ADRs trading in New York also rallied.

Separately, Argentina appealed part of an order by Griesa yesterday in which he permitted the country to make a one-time-only payment this week on some dollar-denominated bonds issued under that nation’s law.

Griesa said he’ll allow the payment to go forward because bonds issued in a settlement involving the Spanish oil company Repsol SA -- where payments aren’t subject to court orders -- can’t be immediately distinguished from a group of dollar bonds issued in the country’s 2005 and 2010 debt restructurings. Payments on the latter securities can’t be made unless holdout creditors are paid at the same time.

Griesa said future payments on the dollar-denominated Argentina law bonds would be barred. Today, Argentina challenged that aspect of his decision.

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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