Argentine debt swap plan draws warnings
President Cristina Fernández announces a work-around to US court orders prohibiting payment on restructured bonds
The Argentine government’s offer to swap New
York-law bonds into local law ones has drawn caution from
analysts about the feasibility of such a move.
||Argentine President Cristina
announces debt swap plan on Tuesday
Photo: Casa Rosada
President Cristina Fernández announced the
plan late Tuesday night, saying she would ask congress to vote
on the idea. In addition to swapping the bonds to Argentine
law, the government is proposing to use Banco de la
Nación as trustee, replacing Bank of New York
If successful, the deal would allow the sovereign
to exit default by paying a coupon due on restructured debt on July 30. The payment has been blocked by US courts until
Argentina and holdout creditors reach a deal.
But analysts were cautious about the feasibility of
Tuesday’s proposal, and the long-term result.
Some 85% of bondholders would need to agree to a
change in the bond trustee, said analysts at BancTrust.
Additionally, the swap could put Argentina in contempt of court
"with unambiguously negative implications, yet not entirely
known at this point", BancTrust said.
"We expect NY-law paper to suffer not less than 10
points today, moving fast forward to a full default scenario
that may force another debt restructuring in the future,
possibly creating a new generation of holdouts."
Real money accounts and dedicated money funds may
also have trouble holding local law debt, BancTrust noted.
Analysts at Jefferies echoed the points, saying
some investors hoping to hold on through a short period of
default may be pushed by their investment mandates to sell.
Only a "small subset" of investors might participate, the
"The execution risk should be high and initial
participation quite low as real money investors are discouraged
from participating at risk of violating the pari passu
judgment," Jefferies said. "The workaround proposal has been
discussed among market participants for over a year and the
feedback from investors has been extremely cautious to this
Analysts were also cautious about the longer-term
implications. If the deal proceeds, it could push back a
resolution with holdout creditors that some had hoped might
come next year, said Capital Economics: "It was notable that
Ms. Fernández stated last night that she had little time
left in office (elections are due in October next year) and
that 'this is not for this government but for the next
one’. As such, a deal with holdouts seems unlikely
until 2016 at the earliest."
Others saw the situation more positively. Bulltick
Research argued that the proposal did not close the door to a
deal with holdout creditors.
"In our view, the introduction of this Plan B, one
that allows for the holders of NY-law debt to ask for their
coupon payment in Buenos Aires without having to tender their
NY-law governed assets, does leave some room open for a future
negotiated settlement with the holdout community to take place,
in that manner maintaining some hope that Argentina may be able
to come back to international voluntary markets at some point
in the future." LF
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