Owl Creek Said to Seek Group to Accelerate Argentine DebtKatia Porzecanski
Owl Creek Asset Management LP is discussing with investors the formation of a group that will demand immediate repayment on Argentine bonds that the government has stopped servicing, according to four people familiar with the talks.
Owl Creek, a New York-based hedge fund with $3.9 billion of assets, is also in talks with law firm Kirkland & Ellis LLP to find interested investors who hold dollar-denominated securities due 2038, said the people, who asked not to be identified because the talks are private. The group would need to hold at least 25 percent of the $5.4 billion of debt to accelerate after they officially fall into default Oct. 30, when a 30-day grace period expires, according to the bond contracts.
In an August presentation for its Argentina Recovery Fund, Owl Creek said accelerating the so-called par bonds -- which trade at about 54 cents on the dollar -- may provide investors with a gross return of 100 percent in a subsequent restructuring. The company said that could take place as soon as January, when Argentina may negotiate with a separate group of investors who won a lawsuit to block payments on the nation’s overseas debt until bonds from its previous default in 2001 are paid in full.
The bonds “have the right to accelerate and have their principal immediately payable in full,” Owl Creek’s presentation said. “This would lead to a seat in settlement negotiations in January, likely resulting in an exchange into new bonds which trade closer to par.”
The pars rose 0.41 cent to a three-month high of 54.41 cents on the dollar at 2:20 p.m. in New York, pushing the yield down 0.05 percentage point to 7.91 percent, according to data compiled by Bloomberg.
Patrick Clifford, a spokesman for Owl Creek, declined to comment. Kate Slaasted, a spokeswoman for Kirkland & Ellis, didn’t return two phone calls seeking comment. Jesica Rey, an Argentine Economy Ministry spokeswoman, declined to comment on the risk of acceleration.
Argentine President Cristina Fernandez de Kirchner has said she can’t negotiate with the investors who sued the country over its 2001 default, led by Elliott Management Corp., until a key bond clause expires at the end of 2014. She hasn’t said whether she’ll pay them next year.
While Argentina deposited $161 million to pay interest on the pars last month, a U.S. court order prevents bondholders from getting their money until the government resolves its dispute with creditors led by billionaire hedge fund manager Paul Singer who refused to participate in 2005 and 2010 restructurings.
As the par bonds go into default, a group of investors collectively holding at least $1.4 billion of the notes can demand full repayment of principal originally due in 2038 as well as interest. The par bonds, which are also denominated in euros and yen, are the cheapest of Argentina’s overseas notes because they pay the lowest interest rates. The dollar bonds pay 2.5 percent annually.
The acceleration can be cured once Argentina pays the securities and 50 percent of bondholders agree to waive the default or annul the acceleration.