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The Economy Ministry building is seen in Buenos Aires. Argentina defaulted for the second time in 12 years after last-ditch talks with what it called "vulture" creditors failed. (ENRIQUE MARCARIAN/REUTERS)
The Economy Ministry building is seen in Buenos Aires. Argentina defaulted for the second time in 12 years after last-ditch talks with what it called "vulture" creditors failed. (ENRIQUE MARCARIAN/REUTERS)

International banks struggling to cut Argentina debt deal Add to ...

International banks are struggling to reach a deal to buy a chunk of Argentine sovereign debt held by New York hedge funds suing the country, sources close to the negotiations said on Tuesday.

Citi, Deutsche Bank, HSBC and JP Morgan entered into talks with the funds to help Argentina swiftly exit its second default in just over a decade, which occurred as a result of a drawn-out legal battle with the holdout creditors.

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Sources told Thomson Reuters IFR that the banks last week offered the holdout hedge funds 40 cents on the dollar for the roughly $1.66-billion bonds, including interest, and raised the offer to 50 cents on Monday.

That price is far below the 80 cents first proposed last week.

The hedge funds, led by Elliott Management Corp and Aurelius Capital Ltd, originally bought the bonds on the cheap during and after the country’s 2001-2002 economic crash and are demanding payment at face value.

“These are not fully-baked proposals,” a source from one holdout firm told IFR.

Sources close to the banks said the talks were ongoing, IFR reported.

Bond prices still reflect market sentiment that an agreement will be reached in the near term, market players say. However, if the debt crisis drags on, it will put more pressure on Argentina’s thinning foreign reserves and an ailing currency.

Argentina’s latest debt crisis stems from its record $100-billion default in 2002. It successfully restructured most of that debt in bond swaps that gave investors less than 30 cents on the dollar. But the holdouts went to court for full payment.

In 2012, a U.S. judge, Thomas Griesa, ruled Argentina could not repay holders of restructured debt without also paying the hedge funds at the same time.

The Buenos Aires government says it met its obligations to holders of exchanged debt when it deposited $539-million into the account of an intermediary bank for a June 30 coupon payment. But Griesa called the deposit illegal and blocked it.

Argentina also argues it cannot strike any deal that offers terms better than the large haircut accepted by the majority of creditors, because of a legal clause in the bond swaps. That clause, known as RUFO, expires at the end of this year.

Analysts say the banks may be nervous about what sort of reassurance they can obtain from Argentina that it will buy the debt back from them, and at what price.

“Our insecurity and the insecurity of the banks has been that the government hasn’t given any indications regarding price points or structure once January hits,” a source close to the talks said.

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