US judge urges Argentina, bondholders to reach settlement

Wednesday 23 July 2014 07.26
The case relates to a restructuring of Argentinian bonds offered after its 2002 default
The case relates to a restructuring of Argentinian bonds offered after its 2002 default

A US judge ordered Argentina and investors who did not participate in the country's past debt restructurings to meet "continuously" with a court-appointed mediator until a settlement is reached, warning of the threat of a new default.

US District Judge Thomas Griesa in New York told Argentina and lawyers for investors who declined to restructure their bonds after the country defaulted on about $100bn in 2002 that time was running out to reach a deal and avert a fresh default.

"That is about the worst thing I can envision. I don't want that to happen," the judge said.

Jonathan Blackman, a lawyer for Argentina, Latin America's number three economy, said even with around-the-clock talks, it would be "unlikely, if not impossible, to result in settlement."

"It simply can't be done by the end of the month," he said.

Griesa ordered the parties to meet with Daniel Pollack, a New York lawyer appointed to oversee settlement talks," continuously until a settlement is reached." Pollack scheduled a meeting Wednesday at 10am EDT (2pm Irish time).

Pollack, who was appointed 23 June as a mediator, has been holding meetings with the parties, publicly acknowledging talking twice with Argentine officials.

Argentina is sending a delegation to meet with Pollack, but a government source said Economy Minister Axel Kicillof would not be among the group.

The presidency of Argentina said in a statement that "Judge Griesa ... resolved absolutely nothing on any of the issues which had been brought before him."

A lead holdout creditor, Elliott Management's NML Capital, said in a statement it was prepared to meet with Pollack to resolve the dispute.

"We are confident this matter could be resolved quickly if Argentina would join us in settlement discussions," NML said.

Argentine over-the-counter dollar-denominated bonds slid following the hearing, before recovering some of the losses. 

The bid price on the Discount bond was down 1.1% on a day earlier at $86.65 at 8.25pm Irish time, while the Par bond was 0.8% lower at $50.80.

"Clearly Argentina is running out of time," said Ignacio Labaqui, an analyst for consultancy Medley Global Advisors.

"Today is the first time I have seen the market believing that Argentina might default. It's up to Argentina to decide what it will do."

Argentina has been pushed to the brink of a fresh debt default by US court decisions that it pay $1.33bn plus interest to bondholders who did not participate in debt swaps in 2005 and 2010. The holdouts are led by NML and Aurelius Capital Management.

The country argues paying the holdouts would open it up to as much as $15bn in claims from other investors and further strain its financial condition.

At yesterday’s hearing, Argentina renewed its request that the judge stay enforcement of his orders. 

Griesa said the step was not necessary, as there are "ways to do something to avoid default."

A lawyer for Aurelius, Edward Friedman, meanwhile urged him to reconsider part of a decision last month allowing Citigroup Inc to process payments Argentina made for bonds governed by the country's local laws. 

Friedman said payments should not be allowed on US dollar-denominated bonds.

Bank of New York Mellon Corp asked the judge to allow it to hold onto $539m Argentina deposited last month for a payment to the restructured bondholders. Griesa previously ordered the sum returned, saying it violated his orders.

Griesa yesterday issued no ruling on the Citigroup issue, and told BNY Mellon and the holdouts to see if they could reach an agreement.