Ambito Financiero Third debt swap begins (governments seeks to reach 95%)

Ambito Financiero

Third debt swap begins (governments seeks to reach 95%)  

It will be if some US$1.5 billion enters.  The government seeks to send a wink to the U.S. courts to show “good faith”

 

Tuesday, September 24, 2013

 

by: Carlos Burgueño

 

From today, and with a nod to the Supreme Court of the United States, the bondholders who didn’t enter the 2005 and 2010 swaps will be able to enter the third call to normalize the debt still in default since 2001. It is estimated that in total there is about US$8 billion under these conditions, and if the government obtains only about US$1.5 billion, the Economy Ministry of Hernán Lorenzino could show an acceptance of 95% (today it is 93.4%). However, the main mission of this new appeal, which will be open with no end date, is that from the highest court of the United States, at a time when it is studying whether it will study the case of Argentina against the vulture funds or now, the decision by the government of Cristina Kirchner to open a round of negotiating with the holdouts will be taken as a gesture of good faith.

 

Yesterday, the Executive promulgated the law enabling the reopening of the swap through a decree published in the Official Bulletin where it "is authorized to carry out all necessary actions for the conclusion of the restructuring process of the warrants that were eligible for the exchange set forth in Decree 1735 of December 9, 2004 and its complementary rules which have not been submitted nor in the swap arranged by Decree 563 of April 26, 2010." Those were the legal rules for the two previous calls to normalize the debt in default.

 

The law allowing the reopening of this process was approved on September 11 by the government and further provides that "the financial terms and conditions offered may not be better than those offered to the creditors in the debt restructuring" of 2010.

 

It is clarified that exempted from the swap are "the public debt warrants that are issued as a consequence of the provisions of the present law." The law prohibits, also, "offering to holders of public debt, who had initiated judicial, administrative, arbitration or any other actions, more favorable treatment than those who have not done so.” This means that the vulture funds that already initiated legal action and who had appellate rulings in their favor with the Court of Appeals of New York, will have to renounce continued litigation (paying the costs generated so far) to be accepted in this third swap. The official text provides that holders of warrants that were eligible for exchange provided in Decree 1735/04" who want to participate in any restructuring operation carried out in the framework of the provisions of this law, must renounce all rights which they were acknowledged under such warrants."  "They must also renounce those rights that had been recognized by any judicial or administrative judgment, an arbitration award or decision of any authority, and waive and release Argentina from any judicial, administrative, arbitration or any other type of action, initiated or which may start in the future in relation to such warrants or Argentina’s obligations arising out of same, including any action to receive capital services or interest from such warrants," as the law states.

 

In this reopening, the government is offering the same bonds as in the last call from 2010; but unlike that call, now there are no international financial actors offered as intermediaries. In that year, when the current Vice-President Amado Boudou was Economy Minister and Hernán Lorenzino was Finance Secretary, the operation was organized by Barclay's, Citibank and Deutsche Bank. In this third swap, the financial operator is the local government, with the Caja de Valores acting as the agent, with the only intervention, at least so far, from Banco Nacion.  In that call of 2010, a total of about US$12 billion, an estimated total of about US$20 billion that had remained in default, according to the calculations of those days. For the reopening of 2013, the volume will not exceed US$11 billion. The bonds to be offered to stakeholders will be exactly the same as in 2010. Institutional investors will receive a Discount bond with a 66.3% haircut on the original debt and, in addition, a Global bond for interest to date with an interest rate of 8.75%. The entirety of the sum would be paid out in 2017. In the case of the individual holders, they will receive a Par bond without a haircut, with a future GDP coupon without acknowledging past years.  That operation is only valid for holders of debt of less than US$50,000 or its equivalent in pesos. In all cases, the original currency (most of the holdouts have dollar bonds) will be respected.  Both types of investors would get a GDP coupon attached to the growth of the economy