December 11, 2017
Friday, August 15, 2014

Debt talks collapsed over price, guarantees

HSBC is one of the banks that was discussing a deal.
HSBC is one of the banks that was discussing a deal.
HSBC is one of the banks that was discussing a deal.

Private banks, vultures fail to reach an agreement on price

Debt talks on Argentina’s defaulted bonds in the hands of holdout hedge funds ultimately collapsed yesterday due to disagreements over prices and the absence of a government guarantee to honour payments on the paper, sources close to the discussions said.

International banks had appeared to be nearing agreement to buy defaulted Argentine debt from holdout creditors who have refused to accept restructuring deals with the country, offered both in 2005 and 2010.

President Cristina Fernández de Kirchner said last night the collapse of a private deal proved what she has long said — that the vulture funds do not want to reach an agreement and their real goal is to make the country’s debt-restructuring process collapse.

There were hopes a deal between Citigroup, Deutsche Bank, HSBC and JP Morgan on one side, and litigant investors led by Elliott Management and Aurelius Capital on the other, could come this week.

The two sides, however, could not agree on a price, particularly as the government’s assurances weren’t explicit or strong enough to justify a higher valuation, the sources said.

An initial offer of 80 cents on the dollar for the bonds was virtually halved to around 40 and 50 cents amid uncertainty over whether Argentina would actually pay the bonds — US$1.33 billion plus accrued interest — next year.

For its part, Argentina was thought to be unwilling to provide a guarantee of payment to banks for fear of violating the Rights Upon Future Offers (RUFO) clause, which expires at the end of the year and requires it to offer equal terms to restructured bondholders as well.

“None of the big banks want to hold illiquid assets forever,” said Jorge Piedrahita, chief executive at Torino Capital, a broker dealer focused on emerging market debt.

“You want more than a nod and a wink from (Argentine President) Cristina (Fernández de Kirchner),” he said. “And that was not coming from the government.”

One source told IFR: “There’s no way an international bank can bridge funding when Argentina is looking riskier and riskier.”

Holdout sources denied market rumors that Aurelius and Elliott themselves had been unable to agree on an offering price for the debt.

Tough talk

Heated public rhetoric from government officials also did little to assure participants that the country was supportive of a deal, the sources told IFR.

On several occasions, the Fernández de Kirchner administration responded to questions over a potential agreement by claiming that negotations between private parties was not its concern, seemingly seeking to avoid any link that might trigger the RUFO clause.

After weeks of government accusations that US court-appointed mediator Daniel Pollack was “incompetent” and “biased,” Cabinet Chief Jorge Capitanich said yesterday morning that the country was “in the hands of an international financial power comprised of small, voracious interests that form a real international mafia.”

Holdout creditors have said they would be open to a hybrid deal involving payment with bonds. This is how Argentina paid settled claims due to the Paris Club and Spain’s Repsol as compensation for the 2012 expropriation of its majority stake in YPF.

However such a deal could only be cut with the government, which has clung to the idea that the RUFO clause, which expires in December, impedes it from offering better terms to the holdout investors. Such a move would trigger the RUFO clause and expose it to billions of dollars worth of claims.

Citigroup, Deutsche Bank, HSBC and JP Morgan, reportedly the banks involved in the now-collapsed talks, once again declined to comment.

Herald with Télam, Reuters, AP

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