Argentina seeks time in negotiations with creditors

By Charles Newbery, Tuesday, July 08, 2014

BUENOS AIRES, Argentina – Argentina will hold a second meeting Friday with a U.S. court-appointed mediator to gain more time for negotiations to avert a second default in its debt payments in 13 years.

The meeting will be held in New York with Daniel Pollack, an attorney appointed by U.S. federal judge Thomas Griesa for the mediation, Argentine Cabinet Chief Jorge Capitanich said Tuesday.

“It is essential to establish conditions for negotiations,” he said in a televised press conference.

Economy Minister Axel Kicillof held a first meeting with Pollack on Monday in New York.

Kicillof said in a subsequent statement that for Argentina to avoid defaulting on its debt payments and to be able to negotiate a settlement with the plaintiffs, it is necessary for Griesa to put a stay on his order to pay the plaintiffs.

The plaintiffs, among them a hedge fund of U.S. billionaire Paul Singer, won a lawsuit in Griesa’s court to get paid back in full $1.5 billion – plus penalties and interest on bonds left over from a $100 billion default in 2001.

Argentina lost its appeals against the ruling, meaning that it must pay back the creditors when it makes its next payment by July 30 to the 92.4 percent of creditors who accepted 30 cents on the dollar in restructurings of the defaulted bonds in 2005 and 2010.

Griesa’s ruling is based on an equal treatment of creditors clause in the contracts of the defaulted bonds, which, if interpreted according to Griesa's ruling, means that Argentina can’t pay the holders of restructured bonds without also paying those that hold bonds still in default.

In a statement late Monday, the Economy Ministry said it is “impossible to comply with Griesa’s judgment as it is interpreted.”

The payment to the plaintiffs will expose the country to payments of up to $15 billion by creditors in a similar situation, or 7.6 percent of the defaulted bonds, the ministry said.

It would also violate a rights upon future offers clause in the contracts for the restructured bonds. The clause exposes it to as much as $120 billion in additional debt payments as creditors holding restructured bonds demand the same treatment as the plaintiffs, or a payment of the difference they received which could be as much as 70 cents on the dollar.

This rights upon future offers clause expires December 31, 2014, leading analysts to anticipate that the government will seek to extend negotiations with the plaintiffs until then to avoid demands from all restructured bond holders.

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