Damage Control

ARGENTINA - In Brief 21 Aug 2014 by Esteban Fernández Medrano

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In line with what might have been expected[1], the confirmation of Argentina’s legally induced default of its exchanged bonds issued under foreign law convinced the government to move ahead with “damage control” measures ahead of a complex debt negotiation scenario next year. Although the government continues to deny that it is in default, as its made all debt payments, for all practical purposes, its legal inability to have bondholders collect the payment generates the risks that the latter defines it as such and, more importantly, requests the acceleration of its defaulted instruments. In such an environment President Cristina Fernández de Kircher (CFK) confirmed late Tuesday that the Executive presented a bill to the Congress by which the government re-launches the 2010 debt restructuring process, offering Hold-Outs and any exchanged bond holders, outside Argentine jurisdiction, the possibility to swap into local law bonds, as allowed by the 2010 prospectus. Alternatively for those investors that either prefer or are legally bound to remain under US jurisdiction (for example may institutional investors), the government announced that it removed the BoNY as trustee and replaced it by the Trustee Agency of Banco de la Nación Argentina (BNA), Argentina’s largest state owned Bank. Economic Minister Axel Kicillof gave Wednesday further explanations to CFK’s announcement. Among the more relevant comments was that the change in the payment agent is not a mandatory change for the exchanged bond holders, but rather a technical consequence of the BoNY’s legal inability to fulfill its role. Kicillof clarified that exchanged bond holders are allowed, according to the prospectus...