Argentina Offers New Swap in “Pragmatic” Plan B
President Cristina Fernández de Kirchner’s plan to steer restructured bondholders into local law debt is hailed as a sensible move by analysts
Argentina's plan to switch bondholders
into local law securities which
would be immune from last week's US court judgment was
praised by analysts as a smart
move, although the effect on prices is
The announcement came after
a US appeals court last week rejected Argentina's
case, which means the
sovereign could be forced to pay holdout creditors $1.33
Argentina will submit a bill to congress
allowing it to reopen an exchange to holdouts on similar terms
as the 2005 and 2010 restructurings - which captured a 93%
participation rate - as well as offer restructured holders the
chance to change to Argentine-domiciled bonds.
Jefferies described the move as
"pragmatism," while noting that "the question now is execution
risk." Specifically, it is unclear whether Argentina has the
logistical framework to pay local law bonds. Also, it remains
to be seen to what extent the bondholders would accept.
"We assume that
risk does not pose a deterrent near term with FX reserves
stabilizing and some early optimism of regime change in 2015
but more importantly that onshore would provide potential
payment against risk of a protracted period of non-payment
offshore," the shop said. "It is clearly a decision between the
least worse alternative."
A few holdouts may take the sovereign up
on the offer, offering upside for asset prices. Bulltick noted
"there is a material chance" of a reaching a level "perhaps
even north of 95%," up from 93%.
"Argentine bonds will outperform EM peers
this year by a very wide margin," Bulltick said.
Argentina defaulted on $100 billion in
debt in 2002, with 93% of creditors accepting restructurings
held in 2005 and 2010. Holdouts are suing for $1.33 billion. A
US appeals court ruled on Friday that Argentina must pay the
holdouts what it owes but delayed enforcement until the US
Supreme Court decides whether or not to hear an appeal.
Fernández de Kirchner claims a
ruling against Argentina would undermine future debt