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Argentina officials stage 11th-hour talks in NYC

Published July 30, 2014 10:37 am

National debt • Economy minister seeking solution to hedge fund demands for $1.5B.
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New York • Argentina's economy minister led a last-gasp effort Wednesday to strike a deal with U.S. creditors that would prevent the South American country from slipping into default.

With a midnight deadline looming, Minister Axel Kicillof arrived at the New York City office of a mediator appointed by a federal court to help close a deal with lawyers for U.S. hedge funds demanding payments of some $1.5 billion.

A deal seemed more likely with news that representatives of Argentina's private banks association, ADEBA, were set to arrive Wednesday with an offer to buy out the debt. In return, the court would allow Argentina to make a $539 million interest payment to other bondholders before midnight, which would allow the country to avoid default.

"We can confirm that that's the intention by the ADEBA — to try to find a way here," Francisco Ribeiro Mendonca, finance manager at Argentina's Banco Piano, told local Radio del Plata. "Due to the legal context, I can't say much more, but we're working along the lines of a contribution by the banks for a mutual fund."

With no deal by late Wednesday, the outlook for Argentina darkened. Ratings agency Standard & Poor's announced that it had downgraded the country's foreign currency credit rating to "selective default" because of the missed interest payments.

S&P noted that it could revise the rating if Argentina were to find some way to make the payments.

The hedge fund investors are demanding that Argentina make full payment on debt that it defaulted on in 2001, even though the investors bought rights to that debt at less than face value. Unless Argentina does so, a U.S. court blocked it from making the interest payment owed to bondholders who separately agreed to a restructuring plan with the country.

Argentine bonds surged to their highest level in more than three years on the possibility that Argentina will reach a deal with the holdout creditors by the midnight Wednesday deadline. Argentina's Merval stock index also climbed more than 6.5 percent in midday trade on a likely deal.

A deal involving the bank association also would seek to release Argentina from an obligation it has to offer holders of the restructured debt payment terms equal to that of the hedge funds. That obligation, written into the earlier restructuring deals, is set to expire on Dec. 31. Argentina fears that violating it would make it vulnerable to an avalanche of demands for up to $120 billion.

"The idea is to get a stay [suspension of the court order] to reach January," said Ribeiro Mendonça. "Clearly there's a concern. There are no winners in a default scenario that brings lower levels of economic activity and a higher jobless rate. The banking sector is going to be the one that contributes the most because it is linked to the debt restructuring."

For years, the Argentine government has called the hedge fund creditors "vultures" for picking on the carcass of its record $100 billion default in 2001. But the mediator said the two sides were making "a frank exchange of views and concerns," although he warned that divisive issues remained unresolved.