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Argentina Open to Talks with Holdout Bondholders

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NEW YORK (The Deal) -- The Republic of Argentina has assured bondholders who already restructured their sovereign bonds, that the nation won't default again, and is ready to open discussions with its holdout bondholders.

According to a source close to the situation, Cleary Gottlieb Steen & Hamilton's Carmine Boccuzzi, one of Argentina's legal advisers, said during a Wednesday, June 18 meeting in with Judge Thomas Griesa in the U.S. District Court for the Southern District of New York that he's been told that Argentine officials plan to start negotiating next week with holdouts.

The Republic of Argentina has assured its bondholders, who already restructured their sovereign bonds after Argentina defaulted on about $93 billion in debt in 2002, that it won't default on those obligations again. However, the plan to continue paying its bondholders and avoid a near-term default is fraught with pitfalls.

The U.S. Second Circuit Court of Appeals on Wednesday lifted a stay on its ruling that Argentina must pay all of its bondholders, including holdouts, if it pays any of them, now that the U.S. Supreme Court decided on June 16 to let the lower court rulings stand.

That gives Argentina a July 30 deadline, accounting for the 30-day grace period after its approximately $225 million June 30 interest payment is due, to find a way to pay its restructured bondholders and avoid a default.

Argentina's economy minister Axel Kicillof said in a televised address late Tuesday that Argentina can't comply with the U.S. court order to start paying its holdouts if it continues to pay the restructured bondholders.

Kicillof announced that an exchange offer is in the works, which would allow restructured bondholders to swap their foreign law securities for Argentine law securities. The goal would be to put those payments outside of U.S. jurisdiction. However, Judge Griesa, who made the original ruling on the bond payment parameters, mandated anti-evasion orders, which make it difficult for the involved parties to skirt his ruling.

Analysts at Credit Suisse suggested in a June 17 report that an exchange offer into Argentine law bonds might risk violating those anti-evasion measures.

"[I]t is unclear whether a foreign investor could be liable for helping Argentina evade the injunction," Credit Suisse said in the report. "This could potentially mean future contingencies for investors if Argentina is found to be breaching a court order."