In restructuring its debt, Argentina faces off against powerful United States investment funds with the deadline for accepting or rejecting the government’s offer expiring this coming Friday. By then, we’ll know how willing bondholders are and whether they’ll be seeking better bond swap conditions.
Who are the creditors?
"Until the day the bond swap closes, we will not be able to tabulate the creditors exactly, due to secondary market sales. But we do know that 80 percent of the bonds are in the hands of US investment funds," says Sebastián Maril, the director of Fin.Guru consultants.
BlackRock, Greylock Capital, Fidelity and T.Rowe Price Group are among the names of some of those funds.
There are also hedge funds, banks and insurance companies on the list of creditors "although their importance is minor," according to Adrián Yarde Buller of Grupo SBS.
What is Argentina offering?
The Alberto Fernández administration’s debt bond swap offer covers US$66.24 billion in bonds issued under foreign law. It contemplates a three-year grace period along with a 62 percent haircut on interest payments (US$37.9 billion) and 5.4 percent on capital (US$3.6 billion).
The bonds were issued between 2016 and 2018 by the Mauricio Macri government but some also stem from the previous debt restructuring in 2005 and 2010 under the Néstor Kirchner and Cristina Fernández de Kirchner presidencies. They will be exchanged for new bonds falling due between 2030 and 2047.
At least two international groups, the Committee of Argentine Creditors and the Group of Debt Swap Bondholders, have said formally they will reject the offer.
Argentina is highlighting its intention to pay and defending the validity of its offer. "The proposal is endorsed by the International Monetary Fund and its technical staff which judges it to be in line with the country’s possibilities to pay," Economy Minister Martín Guzmán said recently.
"The offer is what it is and much better than the funds were expecting. Obviously they’re always going to want more but we stand firm on the offer as presented," a top government source told AFP, ruling out any flexibility.
How strong are the funds?
With their percentages, the investment funds are in a position to block any debt swap.
The three-year grace period is "hard for investors to swallow since in a world with such low interest rates they can sit down to await a better offer while the much higher interest on the current bonds continue to accrue,” he pointed out to AFP.
What comes next?
The creditors have until May 8 to decide whether or not to adhere to the bond swap although the Argentine government can extend the deadline if no agreement has been reached by then.
In the midst of negotiations on the April 22 deadline, Argentina opted not to make interest payments of some US$500 million corresponding to the Global bonds 21, 26 and 46. The grace period runs until May 22 but if there is no bond swap by that date while the interest remains unpaid, the country will fall into partial default.
"The creditors who do not want to enter into the bond swap will sue because they know that in the international courts they can get a better deal,” Maril considered.
That would be the worst-case scenario for Argentina because both sides have plenty to lose and there is an antecedent: when the hedge funds sued the country in the courtrooms of New York and obtained a favourable ruling in 2014.