Argentina is understood to have struck a deal with local Argentine pension funds to restructure $17bn of its $100bn of defaulted debt and past due interest.
If this is true, it would mark the first successfully completed stage in Argentina's widely derided debt restructuring plan.
According to local press reports, the deal with pension funds was to be signed imminently, and Argentina's bond exchange offering would be officially launched globally in mid-November.
Expectations are now that Argentina will submit its final debt offer documents to the US Securities and Exchange Commission next week, conduct a roadshow in the first half of November, launch the debt exchange around November 15, close it on December 17 and deliver the new bonds between December 20 and January 7.
The news of the pension fund agreement came as no surprise to Wall Street or international bond investor groups like the Global Committee of Argentine Bondholders (GCAB), because the pension funds are regulated by the government.
Argentina's 2008 global bonds barely moved from their 31.00 level yesterday (Thursday) afternoon.
“The reason that the pension funds are in on this deal, and they always have been, is that they don't have a choice,” said a Latin American debt strategist in New York.
The news comes after GCAB and other investor groups, together holding about 40% of total defaulted debt, bemoaned Argentina's rogue behaviour at the IMF meeting last weekend.
“No dialogue since April”
“Argentina has made it a policy not to talk to GCAB,” Nicola Stock, co-chair of GCAB, told a packed room in Washington on Monday. “There has been no dialogue with GCAB at all since the meeting on April 16, when Argentina promised it would initiate discussions between its technical people and our financial people.”
In June Argentina filed a restructuring proposal with the SEC which GCAB says amounts to NPV (net present value) losses of more than 80% to bondholders.
“Worse than that,” said Stock, was Argentina's claim in its SEC filing that it will only seek a 70% participation rate. “Then they said to the press that even 50% will be enough,” he added. “They have said clearly if someone does not participate in the exchange they will not be paid another peso.”
GCAB said it would consider taking the sovereign to court if it pushed ahead with its plan without negotiating with all investor groups.
“Certainly in the absence of negotiations we have to look at all the alternatives available and if we feel Argentina is doing something that is outside the regulations,” said Hans Humes, co-chair of GCAB, “then we will have to call attention to it, although obviously that is our worst case scenario.”
According to Argentine press reports, the local pension funds (AFJPs) will be allowed to assign a “technical value” to the new bonds instead of marking them to market, so they don't have to record losses on their investments.
The AFJPs will receive BODEN 2012s and BODEN 2013s (local government bond issues) for their $2.6bn of defaulted Treasury notes or Letes.
The AFJPs would also agree to exchange the rest of their defaulted bonds for $8.3bn of quasi-par bonds and $2.6bn of par bonds. The pension funds will be required to decline lawsuits against the government related to the pesification and debt default.
“According to informal government estimates, the agreement would ensure a participation rate of around 30% to 40% in the debt exchange, considering the exchange of debt holdings by AFJPs, local banks, insurance companies and investment banks,” said Goldman Sachs in a report .
Argentina is hoping to reach its participation rate of 50%-70% by persuading enough retail investors scattered throughout the world to accept the offer on the basis that even a little money now is better than weathering years of legal battles.
A participation rate of more than 80% would be considered a successful restructuring by market participants. And without that Argentina may not be able to return to the international markets.