or alternatively will allow those holders to get their coupon payments via the Argentine Central Bank (and without having to tender their NY-law bonds). Needless to say, the law will look to change the trustee of the bonds, namely the BONY, for “Nacion Fideicomisos S.A”. // We continue to think that the BA-law 2015s and the 2024s remain good options to get involved in this credit, we still think that Buenos Aires provincial bonds remain a buy (following the very high carry), a

Argentina--Surprise Visit From The "Plan B"

The Fernandez de Kirchner administration decided to go ahead and announce the introduction of the famous plan B. The announcement came as a large surprise to us. Since the announcement covers issues affecting sovereign debt, the executive is obliged to send the text of the law to Congress. If the law is approved by Congress (we think it most certainly will), the government will open the door for the holders of NY-law debt to swap their holdings for mirror bonds governed by Buenos Aires law, or alternatively will allow those holders to get their coupon payments via the Argentine Central Bank (and without having to tender their NY-law bonds). Needless to say, the law will look to change the trustee of the bonds, namely the BONY, for “Nacion Fideicomisos S.A”. This decision may imply a violation of the covenants of the bonds, in our view, unless a supra majority of the bondholders agree to the change in the trustee. Still, what is to stop the holder of a bond from individually going to the BCRA to get the coupon payment?

The law to be presented in Congress also reopens the exchange for the holdouts, offering hard currency denominated assets, but under BA jurisdiction. The President announced that the government will credit the accounts of the holdout investors with the coupon payments that those holders would be receiving at this time had they tendered their bonds, even if they did not tender their assets. In other words, the monies will be left available for when and if a hypothetical holdout investor were to decide to go and get paid via the “Nacion Fideicomisos”. We do think that this announcement may lure some debt holders to tender their bonds.

In our view, the introduction of this Plan B, one that allows for the holders of NY-law debt to ask for their coupon payment in Buenos Aires without having to tender their NY-law governed assets, does leave some room open for a future negotiated settlement with the holdout community to take place, in that manner maintaining some hope that Argentina may be able to come back to international voluntary markets at some point in the future. The key issue here, from the standpoint of the economy, is to allow Argentina to eventually be able to finance its “energy revolution”, so that one of the main drains of the current account can be fixed at some point (one of the main reasons why Argentina is suffering from a material reserve drain is tied to widening energy deficit that the country is experiencing at this time).

What will markets do on Wednesday? As we have argued in prior research pieces, most holders of Argentine assets are accustomed to this kind of surprising developments, hence the relatively stable performance that prices have shown lately (despite the declaration of default by the rating agencies). In our view, the markets will take this “not going all the way Plan B” relatively positively, as the plan addresses the current incapacity of restructured bond holders to get paid, but it leaves the door open for a future agreement with the holdout litigants to take place. The issue of the change in the bond’s trustee will likely remain a question mark, yet, as argued before, what is to stop a debt holder to go and receive payment in Buenos Aires, if the holder so wishes?

What about our views on the credit? We maintain all of our recommendations unchanged. We think that the immense carry (relative value terms), the existence of a deleveraged credit, lingering very high international liquidity, high commodity prices, and the prospects of regime change, will keep investors tuned-in to this story. We continue to think that the BA-law 2015s and the 2024s remain good options to get involved in this credit, we still think that Buenos Aires provincial bonds remain a buy (following the very high carry), and we expect the international buy-side to continue getting involved in the regime-change thesis through the equity market.

Alberto Bernal, Head of Research and Partner, Bulltick Capital Markets