Is JPMorgan About To Bailout Argentina?

Update: According to Ambito the deal is a no go as Italian bondholders (and likely all others) claim that a private deal with a buyer of holdout bonds would also trigger the RUFO clause, thus making the deal meaningless and forcing Argentina to payout billions more. From Ambito:

Italian bondholders say a private agreement also would trigger the clause RUFO


The representative of a group of debt holders Argentina Italy, Tulio Zembo said that any agreement between private RUFO also would trigger the clause.


"I do not understand the idea of banks because that would trigger the RUFO" Economy Minister said yesterday. Please do not help us because it makes the situation worse," said Zembo in dialogue with Radio La Red


"All that is settlement discussion will have to olvidárselo until January 2015, because you can not argue," he said.


For the representative of Italian bondholders "the drama of a default is when the debtor is kneeling and can not pay, that would be a problem, here's a serious problem but should concentrate all legal guns to go," he said by way of conclusion.

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With Argentine politicians explaining that "Argentina is not in default" and ISDA set to decide if last night's default is an 'official' trigger event for CDS, it appears Kirchner, Kicillof, and their (k)omrades may have found an angel. The initial 'bailout' plan, by which Argentine banks bought the holdouts defaulted debt (then promptly acquiesced to Argentina's old debt-swap agreement), failed last night; but, as WSJ reports, JPMorgan is in discussions to buy the defaulted bonds of Argentina's holdout creditors. While this would not impact the default decision (that is history), it would speed up the exit from default rapidly. Of course, JPM is not doing this out of love for Argentina, we suspect they are on the hook for a few billion CDS and need some cheapest-to-deliver bonds to help them through the settlement process.


It appears most have taken profits or unwound positions in CDS over the last few years but there remains around $20 billion notional outstanding in Argentina CDS


CDS has surged...on expectations of a trigger being called by ISDA

As WSJ reports,

Still, the bonds remain at lofty prices because some investors seem hopeful that Argentina can quickly emerge from default. Many were focusing on a potential private-sector solution. Argentine press has reported this week that private-sector banks are trying to hatch a plan to help Argentina pay off the debt.




J.P. Morgan is in discussions to buy the defaulted bonds of Argentina's holdout creditors, according to a person familiar with the matter.


Buying the bonds is one of many options, and the talks between J.P. Morgan and Argentine bondholders were still fluid, the person familiar said.




"The expectation of a bank deal is supporting bond prices," said Siobhan Morden, head of Latin America strategy at Jefferies LLC. "But it's difficult to trade these headlines when you're getting whiplashed" by sharp price moves in thin trading. "Most people have adopted their view, taken their positions, and waited to see what the final outcome will be," Ms. Morden said.

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We note that a handful of Wall Street banks earlier this year pitched bond sales that would have paved the way for a deal between Argentina and its holdout creditors. Argentine officials didn't approve the proposals then... maybe they will now...