Argentine Bonds Rally Amid Speculation Dispute Will Be Resolved

Argentine bonds are rallying on speculation the nation will resolve a dispute with holders of defaulted bonds from 2001.

Dollar-denominated bonds due 2033, whose $539 million interest payment was blocked in June as a result of the dispute, increased 2.4 cents on the dollar to 86 cents at 4:46 p.m. in New York. The notes were issued in debt restructurings in 2005 and 2010, and are blocked by U.S. courts from being paid until Argentina compensates holdouts from its previous default.

While talks between Argentine officials and the holdouts broke down last week, triggering a second default in 13 years, Reuters cited anonymous sources in reporting that international banks may come to an agreement with the holdouts as soon as next week to purchase the defaulted securities from them. Separately, a group of creditors is seeking to waive a clause that’s hindered talks between Argentina and the holdouts.

“There’s a huge need for there to be an agreement, so the market will grab on to any positive rumor,” Joaquin Almeyra, a fixed-income trader at Bulltick Capital Markets, said in a telephone interview. “There was general optimism on an agreement, and the story saying talks are moving forward added to the gains.”

Last week, talks between the holdouts and local banks seeking to resolve the dispute failed. Foreign banks including JPMorgan Chase & Co. also engaged in talks to buy the holdout creditors’ defaulted bonds, according to a bank official who asked not to be identified because the information is private.

Talks Stalled

Those talks have stalled several times, although an agreement is close, Reuters reported. The banks and the holdouts, which include hedge fund Elliott Management Corp., have so far been unable to agree on a price for the defaulted paper, Reuters said.

At the same time, a group of creditors holding 7 billion euros ($9.3 billion) of Argentina’s restructured bonds are planning in coming weeks to initiate a consent solicitation to waive a clause in their securities that the nation said prevented a solution with the holdouts. The clause prohibits Argentina from voluntarily offering the holdouts a better deal than the one extended in the exchanges without also improving the terms for the restructured bondholders.

The group holds about 40 percent of the about $23 billion of notes with the clause, according to Christopher Clark, an attorney for the group. Changing the terms of the restructured notes to eliminate the clause would require approval by owners of at least 85 percent of all affected bonds, or about $19 billion, he said by phone today.

“There’s a lot of interest on the part of exchange bondholders, although the percentage you need for a waiver is high,” Alejandro Senorino, a fixed-income trader at Advanced Capital Securities SA in Buenos Aires, said by e-mail. “It’s a process by which until you try it you won’t know how likely it is to work.”

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