​Debt restructuring negotiations

ARGENTINA - In Brief 07 Feb 2016 by Esteban Fernández Medrano

---

Many expectations were set on this government’s debt restructuring proposal for Holdouts. As might have been expected, contrary to the former Kirchnerist proposals, Macri’s team did not refer to the 2005/2010 debt restructuring conditions, nor did it discuss the principal of the debt owed. With an ideologically different approach regarding the importance of capital markets access and the RUFO clause out of the way since more than a year, it recognized 100% of the original face value. Furthermore, it offered holdouts payment in cash, for which it would issue debt to finance the payment. In perspective this is probably a wiser move than to try to convince holdouts to accept argentine bonds as payment for their legal claims. First, because it lifts the uncertainty and coordination issues between the several Holdout groups of having to sell the bonds afterwards in the secondary market. Holdouts would probably price such uncertainty quite expensive. Secondly, because it allows the government to announce (with Griesa’s approval) new debt placements with the holdout problem practically resolved and therefore hoping to capture any potential price upside, rather than to hand over relatively expensive (high yield) bonds. However, the finance secretary Luis Caputo, did request Special Master Daniel Pollack to accept a reduction in the computations of PDI’s. The government seeks to reflect (in light of the cash payment proposition) yield recognition closer to the opportunity cost of not having had the funds over the years than to reflect the credit risk of not being paid in the future. In short, the proposal has two main components and a deadline 1) The “basic fall back option” ap...