Kicillof describes it as a show of confidence in the economy, but few pick up 2024 bonds

Friday, December 12, 2014

Most 2015 bondholders reject cash-out

A mere US$185 million worth of Boden 2015 bonds were converted into cash as part of a bond exchange launched by the government that ended today, leading Economy Minister Axel Kicillof to hail what he called a “positive confidence test” in a terrible week for global markets. By the same token, the minister reported that only US$377 million worth of Boden 2015 bonds were swapped for Bonar 2024 bonds and a mere US$286 million worth of bids for new Bonar 2024 bonds were received, far below the maximum of US$3 billion.

It marked the first issue of dollar-denominated bonds since US credit-rating agencies declared the country in selective default in July after a US judge blocked the servicing of restructured bonds.

The market had been offered a voluntary exchange in which those holding the 7-percent Boden 2015 could cash in their bonds at a value of 97 cents on the dollar, swap them into 8.75 percent Bonar 2024s at 99.70 for every 100 dollars of the 2015s exchanged, plus accrued interest.

A new round of Bonar 2024 bonds was also issued.

Investors were also given the opportunity to sit tight until the original 2015 maturity, which is what the vast majority chose to do.

Kicillof estimated that only two percent of Boden 2015 bonds were swapped out for advance payment, but portrayed that result as a success in light of falling oil, commodity, stock, emerging market currencies and — crucially — bond prices around the world.

“In the context of this catastrophic global context, we have received a boost of confidence for the next year, even as the vulture funds have sought to discredit the country” said Kicillof as he presented the results at the Economy Ministry.

Kicillof had earlier cited a 13 percent nosedeive in the Greek stock exchange and international oil prices that broke past the US$60 per barrel threshold (see page 4).

“If investors didn’t have confidence, they would have come for the dollars, but they’ve decided to stick with our bonds,” Kicillof said.

That diagnosis was backed by Federico Tomasevich, CEO of the Puente brokerage, who expresed no surprise that the market had not been tempted by the Bonar 2024 bonds but agreed with Kicillof’s diagnosis that the lack of significant bond cash-outs was a sign of confidence in the country’s solvency.

In convesation with the Herald, Tomasevich said that the lack of market enthusiasm for Bonar 2024 notes “was not a surprise. It was known. With this (global economic) context, you aren’t going to get a bond purchase in Argentina — nor anywhere else in the world. Things were falling apart and there is no appetite in the market to buy anything.

“It’s a matter of timing, of an international context, if Argentina continues to show positive measures regarding its solvency, then greater bond sales will be possible in the future,” he said while also adding that the “insignificant” conversion of 2015 Boden bonds into cash ratified that the creditors believe that the country’s solvency is not in question and that as Kicillof had argued, that it was a positive sign for the local economy as a whole.

Bonar 2024 bonds

Bonar 2024 bonds, which were issued under Argentine law earlier this year as part of a US$5 billion settlement with Spanish oil company Repsol for ther expropriation of YPF, were quickly snapped up by the market after the Spanish energy company chose to quickly get rid of the paper.

The notes are also not covered by a US court injunction that prevents the country from servicing its restructured bonds unless it also pays holdout creditors in full. Holdout creditors — locally known as “vulture funds” — have been litigating to receive the full repayment of bonds that were defaulted on in 2001 which Argentina has refused to pay, pointing to the terms of 2005 and 2010 debt swaps as the only viable alternative.

The 2024 notes, however, might not be completely immune from litigation risks either, as holdout investors could argue that they should rank pari passu with Argentina’s restructured bonds and ask the courts to bring them under the injunction.

“Those contemplating participation (in the swap) don’t seem to realize that there is a significant risk that these bonds could be brought under the pari passu injunction,” a source close to the holdout creditors told Reuters. “Holdouts could seek to secure this ruling in the future.”

Others believe that convincing a judge to agree to such changes may prove more difficult.

While agreeing that holdout claims on Argentine-law bonds denominated in foreign currency might carry some weight, a lawyer familiar with the situation said widening the scope of the injunction may be a long shot.

“A lot of the local-law bonds are carved out from the definition of external indebtedness and tracing the roots of all of these seems quite complicated,” he said.

Herald staff with Reuters