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Argentina Offers New Swap in “Pragmatic” Plan B

Aug 27, 2013

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 unclear. 

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 billion.

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 pesification 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 restructurings. LF



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