Michael Roche, a strategist at Seaport in New York, said the securities will trade at the same price as the dollar bonds if Argentina seeks a settlement with all its creditors. “When Argentina finally does an exchange, it will seek to redeem as much as of the outstanding untendered as possible so the government can say, ‘In good faith, we conducted an exchange and settled the vast majority of the original issued paper,’”

These Forgotten Argentina Bondholders May Also Get a Big Payday
2015-12-15 02:00:00.1 GMT


By Carolina Millan
(Bloomberg) -- With investors increasingly optimistic that
President Mauricio Macri will end Argentina’s decade-long
dispute with creditors, bonds left over from the country’s 2001
default have surged to a record.
Yet one group of unpaid securities from that era has been
largely forgotten: about $2 billion of notes denominated in
euros and legacy currencies like the Deutsche Mark and Italian
lira. The highest-priced bonds in that basket trade at 110 cents
on the dollar, half the price of the dollar-denominated debt,
according to Exotix USA Inc., a brokerage that specializes in
illiquid securities.
The reason is straightforward. A U.S. court order requires
Argentina to pay creditors from the 2001 default before it can
honor other foreign debt, but that applies only to the dollar
bonds. Those securities have rallied on speculation that Macri
will reach a settlement with hedge funds led by billionaire Paul
Singer, which will pave the way for Argentina to borrow in
overseas credit markets for the first time since 2001.
Macri won’t stop there, according EM Quest Capital LLP’s
Phillip Blackwood. He’s betting Argentina will push for a deal
with all bondholders who’ve rejected previous restructuring
deals, which imposed losses of about 70 percent. That includes
holders of the euro notes.
“The strategy of the Macri government will be to clean up
the holdouts, so that obviously would involve some kind of
settlement across the board,” said Blackwood, a managing
director at EM Quest, which advises Sydbank A/S on $2.8 billion
of emerging-market debt. “But if you believe in a broader, quick
solution and that it’s in Argentina’s interest to bring everyone
to the same table with the same offer, then the euro bonds are
an opportunity.”
A spokeswoman at the Finance Ministry did not respond to an
e-mailed request for comment on whether Argentina will seek to
negotiate with all bondholders.
At his swearing-in ceremony on Friday, Finance Minister
Alfonso Prat-Gay said the new government will settle the debt
conflict rapidly although not without a fight.
“We want the negotiations that are coming to be as quick as
possible but also as tough as possible,” he said.
The comment came two days after court-appointed mediator
Daniel Pollack said in an e-mailed statement that he met Finance
Secretary Luis Caputo in New York and spoke with representatives
of bondholders with $10 billion of judgments.
Caputo told Pollack that the new administration would start
negotiations “promptly” after officials were sworn in, according
to the statement.
Macri, who took office on Thursday, inherits a country
mired in default since July 2014, when his predecessor Cristina
Fernandez de Kirchner refused to abide by the court ruling and
negotiate with creditors she dubbed “vultures.”
Seaport Global Holdings LLC also recommends buying the euro
notes from Argentina’s 2001 default.
Michael Roche, a strategist at Seaport in New York, said
the securities will trade at the same price as the dollar bonds
if Argentina seeks a settlement with all its creditors.
“When Argentina finally does an exchange, it will seek to
redeem as much as of the outstanding untendered as possible so
the government can say, ‘In good faith, we conducted an exchange
and settled the vast majority of the original issued paper,’”
Roche said. “They will need that for capital markets to welcome
the country back as an issuer.”