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Buenos Aires - Prospects for a private sector solution to Argentina's sovereign debt dispute deteriorated on Wednesday after holdout investors said they entertained no realistic offers from bankers while the government dashed hopes it might soon agree to restart talks.
The country's peso currency hit a record low on fears that the already years-old debt saga would linger on indefinitely.
Addressing rumors in the marketplace of offers from big international banks to buy up its position in defaulted debt, one lead holdout investor said after many meetings nothing presented made sense for a settlement on bonds dating back to a near $100bn default in 2002.
"That engagement has convinced us that there is no realistic prospect of a private solution," Aurelius Capital Management said in a statement.
Aurelius is run by Mark Brodsky, who, along with his former firm Elliott Management, have waged a decade-long battle in the US courts to collect on the defaulted Argentine debt they have owned and purchased at steep discounts over the last 12 years.
The holdouts spurned two prior restructurings, holding out for better terms.
"No proposal we received was remotely acceptable. The entities making such proposals were not prepared to fund more than a small part, if any, of the payments they wanted us to accept. One proposal was withdrawn before we could even respond. And no proposal made by us received a productive response," the statement said.
Citigroup, Deutsche Bank, HSBC and JP Morgan offered the holdout hedge funds 40cents on the dollar for the roughly $1.66bn of bonds, including interest, and raised the offer to 50c on Monday, sources told Thomson Reuters IFR.
A second default occurred after Argentina missed a July 30 deadline for coupon payments on bonds restructured in 2005 and 2010. After the deadline passed, hopes turned toward proposals drawn up first by Argentina and then by large international banks to work out a solution.
Read: Argentina in race to avoid default
By clearing up the default with the holdouts from the 2002, Argentina would be able service its restructured debt.
Argentina claims it cannot pay the holdouts on what would be better terms than the investors who exchanged their defaulted bonds under the so-called Rights Upon Future Offers clause (Rufo) .
"Argentine officials hide behind the Rufo provision but make no effort to seek waivers from it (despite being offered them by many of the exchange bondholders)," Aurelius said.
Read: Argentina calls for US intervention
US District court judge Thomas Griesa, who has presided over the long-running legal battle, said on Friday he would issue a contempt order unless Argentina stopped claiming it had met its obligations and was not in default.
Comes out swinging
Argentina came out swinging on Wednesday against Griesa, defying the threatened contempt order.
Far from backing off, cabinet chief Jorge Capitanich said Griesa had not grasped the case's complexities and that no new talks had been scheduled with the hedge funds.
"The proper conditions do not exist to negotiate," Capitanich told reporters in Buenos Aires.
Read: Banks struggle to cut Argentina debt deal
Argentina's peso weakened more than 1.5% on Wednesday to a record low 13.15 per US dollar in unofficial trade . Foreign exchange controls force most Argentines to buy dollars on the black market, which is widely seen as a truer rate of exchange than the official rate of 8.2750 per dollar.
In 2012, Griesa ordered Argentina to pay the holdout group led by Aurelius and Elliott $1.33bn plus interest and barred it from repaying the holders of exchanged debt without paying the holdouts too.
In June, Argentina deposited $539m into the account of an intermediary bank to make a June 30 coupon payment. Griesa ruled the deposit illegal and ordered the money frozen.
As a result, Argentina effectively missed the payment.
Read: Argentina needs protection against challenges
The International Swaps and Derivatives Association (ISDA) will hold an auction on August 21 to settle Argentina's default swaps, Thomson Reuters' IFR reported.
Holders of the restructured bonds have asked Griesa to allow the intermediary bank to release the money, and Capitanich criticised the judge for not acting on those requests.
"His lack of decision clearly comes from not understanding the process, not understanding Argentina's status as a sovereign country," Capitanich said.
Argentina derides the holdout funds as "vultures" out to wreck the country's finances in their pursuit of huge profits. Opinion polls show most Argentines side firmly with the government.
Economy minister Axel Kicillof on Tuesday posted a drawing on his Facebook page of a beady-eyed vulture wearing a shirt with the letters "USA" and emblazoned with the US flag. Next to the drawing are written the words "greed" and "cruelty".
Over-the-counter sovereign bonds traded in Buenos Aires fell by an average 1.3% on the day.
