The Argentina default battle is in its final fortnight, with a July 30 grace period expiration looming, one which would result in a second bankruptcy in 13 years to formally be written down in the history books, and which could spoil the serene glow all global capital markets have found themselves in thanks to the central bankers' soothing words.
As a result, Argentina has resorted to a last ditch strategy to ferret out the full list of holdout creditors (the hedge funds led by Elliott, Aurelius and various other known and unknown bondholders) as well as get a full list of the restructured bondholders (those who are perfectly happy to clip whatever coupon Argentina will pay them instead of seeing their payment stop altogether if and when CFK announces an official default).
As Bloomberg explains, Argentina creditors asked a U.S. judge to allow intermediaries to identify restructured debtholders, so the South American nation can seek their waiver of a clause that may scuttle any deal with holders of defaulted bonds. "While Argentina has said it’s seeking to negotiate with holdouts, the nation may be constrained by a “rights against future offers”, or RAFO, clause that obliges it to extend any improved offer on defaulted bonds to holders of restructured debt."
The need for a waiver arises because the restructured debtholders, who long ago settled for about 30 cents on the dollar, could cite the clause to demand equal treatment if a better offer is made.
In reality, the real motive here is simply to get a DTC list of named, addressed counterparties. Since on June 30, Judge Griesa blocked the restructured bondholders from receiving a $539 million payment from trustee BoNY, it is the fund flow to these entities that is of concern to Argentina, as it clearly does not believe that the holdouts are entitled to a payment. However, nonpayment to the restructured bondholders would be the end of the road for Buenos Aires (if only until the next default). The problem is that Argentina does not know who they are: only BoNY does, and BoNY does not release that information. The loophole is for Argentina to get the full roster directly, something the restructured bondholders also want:
Holders of euro-denominated bonds asked Griesa to allow clearinghouses including Euroclear SA to share bondholder information with Argentina so that the “RUFO” clause may be repealed, the investors said in a filing yesterday.
“The potential triggering of the RUFO provision may be cause a chilling effect on settlement negotiations,” wrote Christopher Clark, an attorney for restructured bondholders. “It may be necessary, therefore, for Argentina to conduct a consent solicitation seeking a waiver of the RUFO provision by the exchange bondholders in advance of a potential settlement.”
And it is here that the holdouts may have been outwitted for once, because should Argentina get the names of everyone it is contractually obligated to make a payment to, it can continue to exist past July 30 assuming it makes the $539 million payment, pretending all is well. To be sure, the holdouts will have none of it: "In a letter to Griesa yesterday, holders of the defaulted bonds argued against allowing Argentina to be given bondholder information, saying it would make it easier for it to route payments to restructured bondholders outside his jurisdiction."
Which is precisely what Argentina intends to do.
So did Argentina find a last minute loophole, or will Griesa once again rule against the Latin American country? Stay tuned, as what until recently appeared an almost certainly bankruptcy, may just be avoided in the 11th hour yet again. And should CFK outwit Paul Singer yet again, we would not want to be the Argentina national football team, also known to Elliott Management simply as "collateral."