Monday, April 11, 2016
Holdouts to be paid first from new Argentina bond
The hedge funds that waged a 15-year battle to force Argentina to make a bigger payout on its defaulted bonds will get first dibs on the proceeds from the country's new bond next week.
In an arrangement both unusual and unusually complicated, the sovereign will pay off its litigant creditors first when it sells the new bond, which is expected to price on April 18.
Making them whole will pave the way for the remainder of the proceeds from the bond to be used, according to an offering memorandum seen by IFR on Monday.The holdouts, led by Elliott Management and Aurelius Capital, refused the terms of Argentina's debt restructuring after its 2001 default and filed suit for a bigger payout.
The complex legal wrangling ended up with a US court blocking Argentina from paying other bondholders before the holdouts - and pushing the country into yet another default.
President Mauricio Macri's administration reached an agreement with the main creditors in February, helping clear the way for Argentina's return to the international bond markets with next week's deal.
In a further twist, the US Court of Appeals will hold a hearing Wednesday on the injunction that blocked Argentina from paying other bondholders who did not fight the restructuring.According to the offering memorandum for the new deal, the injunction will have to be lifted - and the holdouts paid - before the remaining portion is allowed to settle in phase two.
In order for the two-phase process to take place, each series of the new bonds will carry two distinct CUSIP and ISIN identifying codes.
Once both phases have closed, the second set of identifying codes will be canceled and the two sets of bonds of each series will be merged.
In all Argentina currently owes roughly U$11bn to all holders of its defaulted bonds, including the US$8.2bn it has agreed to pay litigant creditors so far.
It has reached a deal on about 90% of the bonds involved in the US court suit, US mediator Daniel Pollack said at the weekend. Argentina has yet to cut a deal with some holdouts.
Under its agreement with the main group headed by Elliott and Aurelius, those creditors can annul the deal if they are not paid US$5.9bn by Thursday.
But with a payout finally in sight once the new bond sale takes place, that is unlikely to happen.
Argentina has already begun marketing the new bond, expected to be a three-part offering up to US$15bn in size.
Deutsche Bank, HSBC, JP Morgan and Santander are global coordinators on the deal, while BBVA, Citigroup and UBS are bookrunners.