Telam
Bondholders formalize an “ad hoc” group to launch an offer of private swap with the vulture funds
Thursday, November 07, 2013
By Mara Laudonia
A handful of large investment funds that participated in the Argentine debt restructuring in 2005 and 2010 (“the swap bondholders”) will next week formalize the launch of the “Ad Hoc Creditors Group” that will offer the vulture funds and Argentina’s holdouts a negotiation of a debt swap among private parties.
Telam confirmed this from the funds leading the negotiations – they are in the United States and Europe – who clarified it is a “private initiative” in which the Argentine government finds itself on the margin of the negotiation.
This “ad hoc” group, which in large part is funds that make up the Exchange Bondholder Group (EBG) which filed an “amicus” brief in favor of Argentina before U.S. court in the lawsuit that it has against the vulture funds, indicate that “we will count legal advice and an underwriting bank” and will put into motion a private “marketing campaign” to reach “the whole universe of creditors,” swap bondholders and holdouts.
That “universe of creditors” that they plan to reach involves US$6.5 billion in nominal Argentine debt which remains in default.
The initiative came together as part of the existing scenario in U.S. court, which holds as a kind of hostage the bondholders that entered the 2005 and 2010 swaps, since they see their collection in danger on Argentine sovereign bonds via New York.
To this is added the scarce interest in participating in a potential swap for local warrants if the case is complicated before the U.S. Supreme Court, and the irruption of rulings in Europe in favor of shared “responsibilities” over the debt crisis between private holders and Argentina.
They also take into account the hard position argued by Argentina to not pay the vulture funds more than the rest; the increasing pressure from the IMF to halt the holdouts, and the confession of the Elliott fund – reflected in an article in the Financial Times – that it’s ready to “negotiate.”
All of that served as an alarm for a solution to come together that was once thought to be “a blunder”, said sources to Telam.
The “private swap” proposal is known on the market as the “Gramercy solution” – since it came out that this fund is one of the promoters of the initiative – and consists of offering a debt swap to the holdouts, where they resign their position of wanting to collect 100% in the international courts and accept negotiating a haircut with private parties (less than what the government offers).
That “gain” that the holdouts would obtain between what Argentina offers them and what the holders offer – which are part of the 93% that entered the swaps – will be paid by the bondholders themselves, who will resign this way part of the payment received for interest on restructured bonds.
For these negotiations to success and once the vulture funds and holdouts give up their bonds in default and give them to the bondholders pushing this initiative, the latter would go knock on the door of the government to put together a new swap, this time with Argentina, and end with the default in this way.
This in the view that Argentina already promulgated the Law of the Reopening of the Debt Swap and lifted the Lock Law in October, and since the new restructuring process would contain the same conditions as in 2010, it would not mean any additional cost for the country.
This “initial loss” by the bondholders would be more than compensated for with the future rises in bond prices.
In the “base” scenario it is calculated that giving up 20% in interest (it would be assumed as a “tax” of 7 dollars per coupon payment), they would obtain a future yield of 24%, since Argentina would end with the default and would go back to financing at single-digit rates and bond prices would improve according to the lines of the proposal that will be presented next week, which Telam had access to.
These returns could ascend to 67% if one calculates the most complicated scenario (meltdown) when the Supreme Court definitively rejects the Argentine appeal, and there is a “technical default” if it cannot pay via New York.
This discount is calculated based on the present value of the income from interest on debt to bondholders collected from 2014 to 2018, which at today's value is around US$ 6.7 billion (values will rise or fall, depending on the negotiation).
So a 20% discount of this amount would reach US$1.4 billion dollars, which is paid out to "compensate" the vulture funds and the rest of the holdouts.
In the hypothetical scenario, the vulture funds - like Paul Singer - will receive about US$ 1 billion in compensation from the bondholders, while the rest of the holdouts will receive an estimated US$400 million
The promoters of the initiative recognize that it is "ambitious" from the point of view that requires three strong conditions: on the one hand to manage to attract the holdouts, who so far have remained outside the exchanges proposed by the country and went the way of litigation; to attract a supermajority of the bondholders from the swap, who must resign a portion of interest, betting to receive future profitability; and finally to ensure a wide participation of both parties.
The so-called "Ad Hoc Group" members recognize that their instrumentation will need time due to the complexity of the operation and the scarce precedent that exists in these types of negotiations.
A hope for the acceptance rate is that of the US$6.5 billion nominal dollars in default, only some 450 million correspond to the ruling from the "trial of the century", the 'pari passu' (the ruling of Judge Thomas Griesa is US$1.35 billion, because it includes unpaid accrued interest).
[NOTE: The above Telam piece was also run on Ambito.com and InfoBAE)
El Cronista
Markets have a financial Christmas awaiting Cristina’s decisions
Thursday, November 07, 2013
by Guillermo Kohan, Reporter
A real financial Christmas is coming together to close the year at home waiting for the return of Cristina: unparalleled profits to intermediaries of the blue dollar, explosive yields in dollars on the stock exchange by the illusion of a future correction in course, or a devaluation, or both (God only knows); and generous yields in government securities apparently secured through 2014 almost certainly without default.
The market men are not concerned about whether there will be a devaluation, because they know that sooner or later they will get the exchange rate adjustment. They are covered with actions linked to exporting, peso bonds tied to the dollar, and dollar bonds that for now are paying. Indeed, most know that sooner or later the blue will have to be dealt with. No one supposes that there would be a total liberation of the exchange rate, but most bet on a certain degree of splitting. As long as the government keeps prohibitions in place or deepens the clamp, but for everyone, the more business intermediaries have.
Immediately, experts are preparing themselves to be covered from the mountain of pesos that will reach the banks between now and the holidays. With the strong consumption in December and January, the system almost completely returns in February, a classic month of exchange rate tensions for this reason. Economist Nicolás Dujovne also warns that this scenario will have to add $35 billion pesos in extra emission resulting from the maturity of bonds in the first month of 2014.
With the prospect of more inflation and further devaluation, optimism is returning over actions that are reappearing as a refuge. "You have to look at balance sheets as well as surveys", recommended Luis Corsiglia, who believes that still it is not late for Siderar, Galicia or YPF. "YPF is worth less than US$4 billion,” he said excitedly. And he recommends also looking at the general board, Mirgor for example. It's a little late for Telecom, he warns, and believes that Aluar is a dollar linked. "If there is a devaluation, Aluar saves you".
For the money men, the future implementation of the new capital markets law is as worrying as Lorenzetti for the over the reckless Media Law ruling. They anticipate that the capital markets law is on track for a full prosecution, and not only over the capacity of the State to intervene in private companies. The conflict will arrive in March.
While awaiting the return of Cristina, the government still raffling off reserves. The leap of the dollar continues without definition, and bets are the same as we discussed in this column 15 days ago, before the elections: deepening the clamp on tourism and imports (Local), do nothing (impasse), split the market more/less (visitors). I remember my choice had been to double-bet: impasse and visitor, i.e. doing nothing (winning) or go for a split rate sooner or later.
The leap of the dollar combines with a more dizzying bet, especially on the money tables, precisely over the financial future. Reappearing again and again as a bet on illusion, almost a foal that pays 20 pesos and that if it’s a winner it will make us all millionaires. The history of progress in the negotiations by the economic team with the World Bank, the agreement with ICSID, the new rate of inflation with the endorsement of the IMF, the outreach to the Paris Club and more recently the ringing out among the funds that are suing in New York against the 2001 default which would free the country from a technical default in 2014 - 2015. It’s all a combination that would allow achieving emergency international credits to prop up the fall in reserves, and as Daniel Scioli would say, ensure that the President ends her mandate well.
Economists are far from euphoric climate of financial operators. For them there is no solution for two reasons: is unthinkable that it can restore confidence and Argentines to release their dollars while Cristina and Cristina team rule. Which capital flight and falling reserves do not hinder at least until the end of 2015. Many warn that it will also continue $ output in all 2016, depending on who wins and how to win the 2015 presidential. Remember that Alfonsin newly accommodated the economy two years after becoming; the same Menem and the same Duhalde-Kirchner. But no one recommends to sell Argentina. On the contrary. It follows the perception of a long term better than the political transition. Even in a crisis, Argentines today have saved many more dollars than in 1989 or 2001, and the world of soy continues.
Immediately, the problem is explained with clarity by José Luis Espert. There is no solution as long as the government has to finance a monstrous fiscal deficit between what it spends and what it brings in. And as no one in the opposition is questioning public expenditure and all the administrations end up raising taxes, prospects for an adjustment do not seem to be nearby. As there is no credit, the reserves are also being liquidated to pay off debt. Conclusion: the government has a total annual deficit coming to US$35 billion, nearly $200 billion pesos a year. A part of it is covered by the reserves and the rest through issuing banknotes without any backing. The run to the dollar, says Espert, is not coming from the energy crisis or the trade deficit, but the waste and the explosion in spending that the political class is not adjusting and is throwing the adjustment onto the backs of the people. With structural inflation approaching 30% a year, it is increasing all the more with excess pesos. Dujovne says that if the government tightens the clamp and no longer allows the use of pesos to pay airfare, cruises, and expenses with credit cards abroad, that mountain of pesos will go directly to the blue dollar, strongly pushing to up the exchange rate gap and increasingly paralyzing economic activity. In the framework of the monetary snowball that will continue rolling downhill, the split currency rate also doesn’t look like a solution. But they acknowledge that given the possibility of a rout, sometimes you have to opt for a double five.
Clarin
Businessmen from the South of Brazil say that the situation is "unsustainable"
Thursday, November 07, 2013
They demand that the government of Dilma Rousseff defend their interests on Argentine trade barriers.
Employers in the State of Rio Grande do Sul, whose main trading partner is Argentina, expressed their deep unease with constraints that block the flow of Brazilian goods towards the Argentina exports because they have generated an "untenable situation".
The entrepreneurs’ meeting was on Tuesday at the headquarters of the Federation of Industries of Rio Grande do Sul and ended with harsh protests about the trade relationship that has this southern Brazilian state has with Argentina, its main export destination.
Industrial leaders from the Rio Grande do Sul demanded greater involvement by the government of Dilma Rousseff in the defense of their interests and raised the need to carry out a state policy of diversification of its trade relations.
Hector Klein, President of Abicalçados - a shoe manufacturing concern - explained that he cannot bring his products into Argentina despite their competitive prices. "Business does not materialize, because there are circumstances that obstruct the process, issues that cannot be understood. Prior to the emergence of Mercosur, we had very good relationship with the Argentine footwear producers. The chambers met regularly, we would promote debates, we made suggestions to expedite the flow of trade, and the relationship went very well - the numbers say it all,” said Klein.
According to the businessman, later on "the Argentine position hardened and now, after the introduction of the DJAI, the situation has become unsustainable—there are currently 741,800 pairs of footwear with a value of 13.2 million dollars being held up, having already lost out on Mother’s Day sales and now on the verge of losing Christmas." Moreover, Marco Maia, Federal Deputy (PT-RS), and president of the Foreign Relations Committee yesterday published an opinion column in the newspaper Zero Hora of Rio Grande do Sul, where he highlights the growth rates in Venezuela, Colombia, and Peru - with a consumer population of more than 100 million people - and suggests that these be seen as alternative export markets. The Congressman proposed reversing the "privileged position of the hermanos (by reference to Argentina) in the portfolio of Brazilian exports,” especially given the panorama of uncertainty surrounding the political and economic future of Argentina. And he concluded that now it is important for Brazil to diversify trade relations to protect its economy in the event of economic decline in Argentina.
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