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The government is seeking to get 70% of the debt in default to enter the swap in the first week
El Cronista
December 23, 2009

About US$14 billion, representing 70% of the total. With that, they are putting pressure on the small bondholders, who would have a whole month to decide. At the beginning of January, they will send the offer to the U.S. SEC and this will delay the launch of the operation until February.

LEANDRO GABIN Buenos Aires

The government could show that a large part of the bondholders in default accepted the debt swap in the first week of the operation. They are studying ways to put in motion the various different sets of terms for entering the proposal, making the institutional investors (who hold US$14 billion) the first to be invited. The Palacio de Hacienda believes that there is a high chance that this amount will completely enter the operation. Among those investors is US$10 billion that is "guaranteed" from the advisory banks to the government (Citi, Deutsche and Barclays). If the plans come out as they think, they could show in the first phase of the operation that around 70% of the US$20 billion (without counting interest or penalties) accepted to swap their bonds. This, they guess at Economy, would have "a psychological effect" on the smaller investors, who hold around US$3 billion. In this case, the idea is to give this class of investors the whole month to enter the swap and deploy a "group-think" strategy to sell the sweetness of the deal. Of course, relying on the fact that the majority of the bondholders have already given their approval.

Closing in March

The timeline for the economic team is as follows. Argentina has already presented most of the documentation to the Securities and Exchange Commission (SEC), the stock market regulator of the U.S. It's expected that in two weeks, or at the start of January 2010, the Argentine offer, with details on the bonds to be emitted, will be in the hands of the SEC. An imponderable from this end could then occur, which is the time that the US will take to give final approval, and the government hopes to have that resolved as soon as possible. The same to obtain the good view of the other financial markets like Luxembourg (the "passport" for emitting in Europe) and Japan, both markets where a large number of holdouts are concentrated. Thus, between the end of January and the first week of February, the operation will be launched. With the terms drawn up, it's very likely that the operation will be formally concluded in March.

With respect to the conditions and details of the offer, Economy is still pulling together some points. The assignment is to make the proposal worse than the one in 2005, something that the market is doubting when they take into account the terms of the present net value (the price that the market gives today to what the country offers).

It happens that the rally on bonds and the GDP coupon made the "packet" value around US$50 for each 100 dollars indebted. What is unknown is around whether to recognize or not the past payments on the coupon. What is certain is that they will emit a Discount for the principal, another bond (or perhaps two) for the new money, or the cash payment of US$1 billion that will have to be done by the creditors, and the interest on the principal. The bond, still undefined, will be for seven years at a single-digit interest rate.

Vulture funds

Another bit of data that is running through official corridors is that the treatment of the small bondholders will be "preferential" (they won't have to put cash in to enter the operation and they will be given a shorter bond for past interest). Also, as this newspaper reported more than a month ago, the latent idea remains to minimize the power of the vulture funds: they will make a kind of judicial deposit where they will place the same offer (be it bonds and the GDP coupon) as those who accepted the swap. Thus, they seek to get the backing of Thomas Griesa, the New York judge that has the Argentine case, in the sense that the country negotiated "in good faith" and that "they can enter when they want and accept the offer." That is Boudou's idea, who ordered the firm of Cleary Gottlieb to put the structure together and consult with foreign courts. Thus, it's believed that the power of the vulture funds, who hold around US$3 billion (as some believe this amount only refers to the Dart and Elliot funds) could not overshadow the result of the swap.

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