Ambito Financiero Government prepares general offer and awaits the ping-pong

Lead Articles:

 

Ambito FInanciero: “Hope: that the court denies vulture appeal”

 

Ambito Financiero: “New swap would mean bonds for US$4.8 billion”

 

Ambito Financiero: “Government prepares general offer and awaits the ping-pong”

 

Debt Digest:

 

EL CRONISTA:

• “Expectation for holdout payment formula allows a respite in the markets” (no byline)  Calling it “good news in a sea of bad news”, analysts read the Argentine bond and stock climb-back this week as a reaction to the Court of Appeals request for information on Friday.  But “not all are convinced that it’s really an auspicious sign and many understand the request as a mere formality.”

 

 

OTHER NEWS ITEMS:

• Intense rumors swirled in Buenos Aires yesterday that Repsol and Argentina were close to announcing a settlement on the expropriation of YPF, and YPF shares soared on the news.  However, Repsol publicly denied the rumors and said it has not received any offer  and that no settlement is being analyzed.
• The sale of the InfoBAE media group assets from Daniel Haddad to pro-K businessman Cristobal Lopez has been approved by the media regulatory authority.  It implies that the cable news channel C5N, as well as Radio 10 and other media assets will shift from independent editorial stances to being firmly in the pro-government camp.  However, La Nacion and Clarin’s coverage is full of critical analysis that the sale and transfer of licenses is not in line with the Media Law, and that an exception is being made for a pro-K company.

 

 

TRENDING TOPICS/ARGENTINA on Twitter:

• “Chavez” has begun trending on news of his worsening health.

 

 

Ambito Financiero

Hope: that the court denies vulture appeal

It would be the hypothesis of the Cleary firm if the court accepts Argentine offer

 

Tuesday, March 05, 2013

 

By: Carlos Burgueño

 

Information arriving from New York provoked optimism in the government.  Attorneys representing the country from the firm of Cleary, Gottlieb, Steen & Hamilton, and who are permanently in contact with the economic team of Hernan Lorenzino, explained an eventuality to local officials: if the Court of Appeals of New York accepts the debt swap proposal that must be presented before March 29, it’s possible that the lawsuit would end there, as it could close off the alternative of appealing to the Supreme Court by the vulture funds.  As a counterpart, if that appellate court rejects Argentina’s presentation and obliges the payment of 100% in cash to the holdouts, which the country would reject, the possibility to go to the high court would be open.  The different and the better position for the government would have a key difference: in the case that the offer is reopened, it would violate a U.S. federal law, while in the opposite case not.  

 

The explanation that arrived from Cleary, Gottlieb, Steen & Hamilton is simple and depends on a third actor: the Bank of New York Mellon (BONY). This entity is the one charged with making the payment to the holders of debt bonds emitted under Wall Street jurisdiction.  It’s the agent that handles the trust with the money that is sent from Buenos Aires, and which is deposited in the creditors’ accounts.  The ruling by Griesa in November of last year and which Argentina appealed to this court, imposes direct responsibilities on BONY for it to capture part of the US$3.5 billion that the country had to pay on December 15 for the liquidation of the GDP coupon, and that it send to the holdouts in the same amounts as the liquidation of regular holders.  If it refused to make this operation, BONY would have been sanctioned, by being characterized by Thomas Griesa as an accomplice to a crime together with Argentina.

 

For this accusation the entity turned into a legal ally of Argentina in the suit, presenting itself as a damaged third party in the hearing on February 27.  In the presentation the entity described itself as a victim and was designated by Ted Olson, attorney for the vulture fund Elliott of Paul Singer, as co-responsible for the crime that it could not be implicated in if Argentina paid up.  In another manner, “it should be considered in contempt,” according to Olson.

 

Speaking at the hearing, BONY put forth that to uphold Griesa’s ruling, and with the security that Argentina would not pay 100% of the debt still in default, they would also have to sue the entity to collect, opening a new round of legal actions to resolve the conflict.  This situation, according to BONY, would mean returning everything to zero and “destroy the state of New York as a center for debt restructuring” demolishing “80 years of trustee business on Wall Street.”

 

The interpretation of the American firm is that the only situation that guarantees an eventual opening of the interest of the U.S. Supreme Court for taking up this issue is the BONY as co-responsible for Argentina’s payment.  The fund Elliott and the rest of the accusers would advance on the bank, which, according to Cleary’s interpretation, would mean a question that would permit BONY to the defense of the court.  Only 25 to 30 cases reach that court per year, and only those with constitutional breeches that need resolution are taken.  BONY’s responsibility, and indirectly Argentina’s and the right to collect by the holdouts, could be one of them.

 

The same wouldn’t happen if the ruling doesn’t favor the vulture funds and they would want to appeal.  It happens that if the Court of Appeals accepts the offer put together by the team of Hernan Lorenzino and Finance Secretary Adrian Cosentino, and that must be approved by Cristina Kirchner, before being presented before the court in New York, would end up being the firm ruling in favor of a solution to the conflict with the acceptance of a payment plan, whatever that would be.  If the vulture funds don’t accept it, they would be the ones who would try to open up an alternative of the court, which would be seen as difficult if a federal law violation is not found, as would have been the case for BONY.

 

 

Ambito Financiero

New swap would mean bonds for US$4.8 billion

• This emission would add to Argentina’s debt stock

• Will the operation be identical to the one from 2010?

 

Tuesday, March 05, 2013

 

By Pablo Wende

 

To replicate an identical swap to the one in 2010 would mean the emission of new warrants for a maximum amount of US$4.865 billion, which would replace the US$11.177 billion currently in default, if the 100% of the holdouts accept the proposal.  So estimated the consulting firm Quantum Finanzas, led by Daniel Marx, former finance secretary.  The proposal would have to include the emission of a Discount 2033 bond for US$3.026 billion and a Global 2017 for another US$1.838 billion, which would replace the expired interest since the default.

 

If the terms are repeated from the swap done two and a half years ago, the government would offer GDP coupons to the holdouts.  Economy Minister Hernan Lorenzino made it clear that “past payments will not be recognized”, which is to say all that has already been paid out on that instrument.  However, the investors will be able to collect what the coupon eventually pays in 2014 onward.  This year a disbursement is already discarded, as growth last year was less than 3.26%.

 

The bonds that are finally emitted will increase Argentina’s debt stock, as what is currently found to be in default is not considered in public statistics, while it does figure in information distributed by the Economy Ministry every three months (the last data corresponds to June 2012).

 

According to what economists Mario Brodersohn and Ramiro Castiñeira detail, the swaps of 2005 and 2010 “allowed for an important haircut over the owed amount, extension of payment deadlines, lowering of average interest rate and even swapping a part of national currency.  The payment of interest on public debt went down to less than 2% of GDP, even when the GDP coupon was paid.”  The new warrants that potentially could be emitted by Argentina (Discount and Global 2017) will add some US$335 million – which is to say a smaller amount – in interest payment.  One of the aspects to clear up is if the amount that the vulture funds demand is correct, as the attorneys for Argentina never at any time put it in doubt.  Basically, the defense emphasized the argument of “pari passu”, or equal treatment among the bondholders, and sovereign immunity to defend itself against possible attachments.  However, “sufficient emphasis was not placed on the payment proposal”, Marx stressed.  

 

Within this proposed scheme of an identical proposal to the one from 2010, variations arise.  One of them is the possibility of delivering Par bonds, with or without a haircut on principal.  The government will try to avoid it, as it would be similar to the Discount in terms of annual cost but in reality would mean a bigger increase in the debt stock.  It could be, in any case, something held up Economy’s sleeve if it needs to improve the terms of the proposal.  

 

Regarding the Global 2017, the delivery of this bond would be disadvantageous today for investors, since it is quoting at a heavy discount.  The annual coupon is 8.75% and would be placed at 100% of nominal value.  However, in the market it is priced at US$80, which means a practical discount of 20%.

 

Lastly, it remains to be known if the proposal will, in the end, include the GDP coupon.  The inclusion is practically for free for the government.  It will not have to make payments from previous years and with luck there will be a new distribution at the end of 2014.  And if growth this year also does not surpass 3.2%, it would wait until December 2015, which is to say after the term of President Cristina Kirchner has already ended.

 

 

Ambito Financiero

Government prepares general offer and awaits the ping-pong

 

Tuesday, March 5, 2013

 

By Guillermo Laborda

 

The government will not necessarily send to the Court of Appeals in New York a detailed offer, with a list of papers to offer the creditors, on March 29.  According to what officials at the Palacio de Hacienda assure this newspaper, the request from the judges “does not include specifications of the offer.  It is ordered that on March 29 or before, Argentina send a document to the court that details the terms of the payment formula and the schedule that it is prepared to honor” says the court order.  It adds in subsequent lines the request for guarantees, if it would do so, that it will honor the payments.  Even in the economic team they dismiss lifting the lock law in March since it would not be necessary for the same reason.

 

A scenario that is opening up in function of the official game play is that after March 29 there will be some back and forth between the parties.  “It could become an extensive ping-pong that extends the time period,” added the official consulted.  “Every legal term will have to be defined that will be included in the presentation,” he concluded.

 

The impression in the markets is that Argentina has an exit door opened with the emission of a Par 2038 bond.  There are no limits for it in virtue of the swaps of 2005 and 2010: they can issue it as a consequence of a court ruling, not as an agreement with the creditors.  It is what eventually would happen with the treatment of the U.S. Court of Appeals.   The March 31 payment for the expiration of the Par bonds coming out of the 2005 swap would be out of danger.  It’s that it is assumed that save Argentina making a minimal payment proposal, the judges will order additional requests for information, even to the plaintiffs, the vulture funds.  The future of the case, and the eventual technical default, is a function of a high proportion of the paws that the government is moving on March 29.  At the same time there is the “en banc” appeal presented by Argentina for the 13 members of the Court of Appeals to take the case.  It is assumed among attorneys and the government itself that the three judges handling the case are keeping informal contacts with the other 10 judges that make up the court in such manner that the decisions they are making now reflect in reality the thinking of the whole Court of Appeals.  For that, the “en banc” would not be a pathway after the sentence.

 

Beyond that ping-pong opening up, the timing until the decision of the case will not be long.  What is clear is that the 100% payment owed to the plaintiffs and in the action has fallen aside.  “Do you serious plan to collect everything and right now?” was one of the questions from Judge Reena Raggi on Wednesday.  On the other side of the rostrum, Bank of New York Mellon, it is in view that it will be taken as Argentina’s payment agent and not as a trustee of the exchange bondholders, and as such, it will be in the sites of the American courts if it fails to block payments.