Argentine Bonds Tumble as Elliott Talks With Banks Fail

Argentine bonds posted their biggest weekly loss in 19 months on concern private efforts to resolve a dispute with hedge-fund creditors led by Elliott Management Corp. have come to a halt.

Elliott’s NML Capital Ltd., which has a U.S. court order preventing Argentina from making debt payments until it pays the hedge funds $1.5 billion on bonds left over from a 2001 default, said today that talks with private parties have failed to produce an acceptable solution. International banks including Citigroup Inc. that had discussed finding a buyer for at least a portion of the defaulted securities couldn’t agree on a price, a person briefed on the meetings said.

While the idea was that the purchasers would be compensated by Argentina early next year, the talks also stalled because the government wouldn’t provide sufficient guarantees for an eventual buyback of the bonds, said the person, who asked not to be identified because the discussions were private. Economy Minister Axel Kicillof says the government can’t immediately reimburse holders of defaulted bonds that won a court order for full repayment because doing so could give rise to $120 billion in additional claims. Such a risk would diminish next year, after certain bond-contract clauses expire.

The failure marks a further setback for Argentine bondholders who can’t get paid because of the dispute. In the weeks since the country missed a July 30 deadline to make a $539 million interest payment, and Standard & Poor’s declared the country in default for the second time in 13 years, investor optimism for a quick fix had been pinned on the private talks.

‘Losing Patience’

Prices for the notes due in 2033 fell 5.84 cents on the dollar this week to 80.17 cents, their biggest weekly drop since January 2013.

“Everyone is losing patience and faith,” Juan Carlos Rodado, the head of Latin America research at Natixis, said by phone. “The market today is in a certain way assimilating the fact that finding a solution is not that easy.”

Aurelius Capital Management LP, another holdout hedge fund involved in the talks, said Aug. 13 that there was “no realistic prospect” of reaching a deal.

“No proposal we received was remotely acceptable,” Aurelius said in a statement. “The entities making such proposals were not prepared to fund more than a small part, if any, of the payments they wanted us to accept. One proposal was withdrawn before we could even respond. And no proposal made by us received a productive response.”

Average Price

Other banks involved in the talks included JPMorgan Chase & Co., HSBC Holdings Plc and Deutsche Bank AG, according to people familiar with the matter.

Danielle Romero-Apsilos, a Citigroup spokeswoman, declined to comment, as did Veronica Navarro Espinosa, a spokeswoman for JPMorgan. Lyssette Bravo, a spokeswoman for HSBC in Mexico and Kerrie McHugh, a spokeswoman for Deutsche Bank, also declined to comment.

While bonds are down from the three-year high of 95.6 cents they reached before the default, they’re still about 7 cents higher than their average over the past five years.

“I wouldn’t call this a bloodbath,” Alberto Bernal, head of research at Bulltick Capital Markets, said by phone from Miami. “Even though the news is negative, the reaction in the market has been relatively contained. Bondholders still remain confident that an agreement will be found at some point.”

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