The group, led by Gramercy, the “vulture fund” that withdrew its claim and allowed the government to reopen the swap in 2010, is seeking that the restructured bondholders cede in favor of the holdouts 5% of the interest they have to collect on Argentine bonds in the coming five years. This money would then be added to the debt swap offer of the government and would serve for the holdouts to abandon the judicial route

La Nacion

The holdouts say that they will negotiate, but only with the government

On Wall Street they see the intermediation of private funds as difficult

 

Thursday, October 24, 2013

 

By Florencia Donovan

 

Just like President Cristina Kirchner said that she only wanted to talk with the “owners of the circus” when she convened businessmen after the primary elections, to debate the future of the economy, one of the main funds that is suing in American courts over the default warned yesterday that while it is ready to negotiate an extrajudicial settlement with the country, it will only do it with the owner of the circus. 

 

"It’s not serious to think that Argentina’s debts can be resolved without Argentina’s participation,” a spokesman from NML, the Elliott Management fund and one of those which carried the case forward in American courts, said yesterday to LA NACION.  “We are ready to negotiate with the country,” the source clarified.

 

The statements came after it came out some days ago that a group of funds with restructured bonds are sounding out other investors from the market to see if they can bring together the government and the so-called “vulture funds” to lift their judicial claims.  The group, led by Gramercy, the “vulture fund” that withdrew its claim and allowed the government to reopen the swap in 2010, is seeking that the restructured bondholders cede in favor of the holdouts 5% of the interest they have to collect on Argentine bonds in the coming five years.  This money would then be added to the debt swap offer of the government and would serve for the holdouts to abandon the judicial route.

 

It is, in principal, an offer that apparently both parties would come out benefitting from: the owners of restructured bonds, because they would avoid a default that would send the price of their bonds plummeting, and the holdouts, because they will be able to collect at least part of what they claim.  Many fear, in fact, that even with a favorable ruling in the U.S. Supreme Court, Argentina will never pay its obligations.

 

On Wall Street, however, analysts and funds believe that it will be very difficult for the Gramercy strategy to end up being implemented.  There are even those that let it be known that it’s a strategy that will only allow the government to buy time and improve its profile before the U.S. Supreme Court. 

 

"It’s an ambitious idea and not an easy one to implement.  Theoretically it sounds good: to sacrifice 5% to pay Elliott, with the good news the bonds rise, and that way the bondholders gain 15%.  But the temptation to get a free ride is also high,” said Diego Ferro, partner at Greylock Capital Management, a high-risk fund that had bonds in default and swapped them in 2010.  “And if there is not a massive acceptance by the bondholders, it will be hard for them to change the conditions of the bonds.  In all, I see it as very difficult to implement,” he added, in a dialogue with LA NACION from New York.

 

In the same direction, Sebastián Vargas, economist at Barclays, said it was difficult to justify a transaction like this from the side of the bondholders.  “Our main scenario continues to be that Argentina will run through all the legal instances before sitting down to negotiate,” Vargas said.

 

Meanwhile Siobhan Morden, chief of strategy for Latin America at Jefferies, also put in doubt that the government is really ready for a settlement with the so-called “vulture funds”, considering that an agreement would have political and financial costs.   Among the first, she said, the government wouldn’t have a way to justify a payment to the “vultures”.  Then, form the financial angle, she clarified, it would have to be worked out how to make a voluntary payment without setting off the clauses of the restructured bonds that impede the holdouts being paid more than those who entered the swap