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Argentina Banks Preparing Bid to Help Argentina Avoid Default

Argentina Banks Preparing Bid to Help Argentina Avoid Default

Posted by Juan Gavasa on July 30, 2014

Members of Argentina's banking association, known as Adeba, are working on a last-minute plan to help the country avoid default, according to people familiar with the matter.

News of the plan came as Argentina's economy minister said late Tuesday that the country would continue negotiations on Wednesday with holdout investors after failing to reach a deal during a full day of talks. Argentina needs to reach an agreement with the investors by Wednesday to prevent a default, which would be its second in 13 years.

Meanwhile, Argentina's representatives and the holdout creditors met face to face for the first time Tuesday, the court-appointed mediator, Daniel Pollack, said in a statement after the talks had concluded.

"The issues that divide the parties remain unresolved," Mr. Pollack said.

Mr. Pollack said Argentina and the holdouts hadn't yet determined whether and when to meet on Wednesday.

Elliott Management Corp., one of the leaders of the holdouts, couldn't immediately be reached for comment.

The bankers association's plan, which hasn't been completely hashed out among the banks, would entail buying the legal claim and paying off the holdout creditors who are suing Argentina in U.S. courts for full payment on bonds the country defaulted on in 2001.

In exchange, the banks would ask the holdouts to ask U.S. District Judge Thomas Griesa, whose ruling has barred Argentina from paying its restructured bondholders unless it pays off the holdouts, to suspend his ruling.

"There is a little bit of a mess within Adeba," said one of the people, noting that the president of one of the banks took the lead in trying to organize the plan without getting full authorization from the other banks.

Another person said the idea is for the banks to buy the government's claim in three cash installments. In exchange, the banks would ask the government to pay them back in bonds beginning in January, when a key clause in the case expires.

This clause, the "Rights Upon Future Offers," or RUFO clause, says that any voluntary deal offered to the holdouts before the end of this year must also be offered to the restructured bondholders. Argentina has argued that if it pays the holdouts, the country would also have to pay as much as $120 billion to other bondholders to comply with the RUFO clause.

"I don't think we can say today that this proposal from Adeba is firm," a person familiar with the situation said.

The person said the banks first need to agree among themselves on the details of the proposal, then they would need to get assurances from the government that they would be adequately compensated.

This plan, if it works, would be a huge breakthrough in a case that has weighed on the country's citizens and politicians, as well as lawyers and bondholders, for years.

Argentine officials were in talks with the mediator at his New York office for 12 hours on Tuesday. Argentine Economy Minister Axel Kicillof arrived approximately seven hours into the negotiations.

Argentina missed an interest payment on its restructured bonds due June 30, and the grace period for that payment ends on Wednesday. A U.S. judge has said Argentina isn't allowed to make that payment until it pays the holdouts. Argentina had refused to pay the holdouts or even meet with them face-to-face for negotiations.

Argentina's dispute with these creditors is a long-standing battle that stems from the country's default in 2001. The holdouts were the approximate 7% of Argentina's bondholders who refused to accept the country's debt-restructuring offers in 2005 and 2010 and have instead sued for full payment.

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