Ambito Financiero Government rapidly opens swap: will aim for 95% acceptance

Ambito Financiero

Government rapidly opens swap: will aim for 95% acceptance

 

Wednesday, September 11, 2013

 

by: Carlos Burgueño

 

The government will issue rulemaking on the debt swap call immediately, and in less than 15 days it will be open. The intention of Minister Hernán Lorenzino is that between October and December about US$1 billion will accept the operation and it will surpass the psychological acceptance rate of 95%. According to the recommendation that the Cleary, Gottlieb, Steen & Hamilton (CGS&H) lawyers made, that the swap be reopened with interested parties who have already entered by accepting the proposed haircuts, would be key for the judges of the highest court to see that the country has a good negotiating will, and that the offer is not distorted or unacceptable.

 

From the first moment that Cristina Kirchner agreed to reopen the swap for the third time, after the negative ruling of the Court of Appeals of New York, the intention of the government has been to the give a nod to the Court about its will to negotiate.  Different from the swap call of 2010, this time there will be no international financial actors offered as intermediaries. That year, when the current Vice President, Amado Boudou, was Economy Minister, and Hernán Lorenzino was Finance Secretary, the operation was organized by Barclay's, Citibank and Deutsche Bank. In the call of 2010, a total of about US$12 billion entered, of an estimated total of about US$20 billion that remained in default, according to the calculations from those days.

 

Currently, the total volume still in default would not exceed US$11 billion. All this money is in the hands of vulture funds (mostly) and private holders, mostly Argentine and Latin American in origin. Some of them are already associated with the fate of the vulture fund Elliot in the American courts. The official strategy will be to pore over the holdouts who are not litigating in the courts of the United States. The government, if it manages to get between US$2 billion to US$3 billion to enter call and final acceptance rate exceeds 95% of the debt in default from 2001, it will consider the operation a success. The warrants to be offered to holders will be exactly the same as in 2010. Institutional investors will receive a Discount bond with a 66.3% haircut on the original debt and, in addition, a Global bond for interest to date with an interest rate of 8.75%. The whole of the sum would be paid out in 2017. In the case of the individual holders, they will receive a Par bond without a haircut, with a future GDP coupon without recognition of the previous years. This operation is only valid for holders of debt that is less than US$50,000 or its equivalent in pesos. In all cases, the original currency will be respected (most of the holdouts have dollar bonds). For both types of investors there will be a GDP coupon attached to the growth of the economy.