06/21/2020 - 0:10
The discussion on the debt in dollars governed by foreign law could be extended until July 24, according to the new extension announced on Friday night by the Ministry of Economy.
More than a month may be enough time to discuss until the last comma of the specifications of the new bonds. The small print of the contracts is not a minor issue . It happens that the conversations, at this stage, seem to have passed into the hands of the lawyers of each party .
According to sources closely following the negotiations, disputes over the Collective Action Clauses to be incorporated into the new bonds became a central part. The bondholders' attorneys want that the debt papers delivered by Argentina -in the event that the swap finally takes place- contemplate very demanding CACs, more similar to those of the 2005 bonds than to those that began to be issued from 2016. The difference is this: to modify the conditions of the 2005 bonds (Par and Discount) the issuer must collect at least 75% of the creditors' votes. For the 2016 bonds, these requirements drop to 66% and, in addition, combining the series to the taste of the Government, would reach 50% or less of some series of bonds.
This is considered very risky by creditors, almost a sign of "bad faith", because if the debtor, in the future, has trouble paying or refinancing the debt again, it could promote new conditions to the detriment of creditors and by being able to group at your whim the bonuses, force the modifications.
The format of the CACs incorporated into the bonds issued by the Mauricio Macri government when Argentina returned to international markets in 2016 emerged from global discussions, that is, they are not an “Argentine invention” . A former official who participated in these discussions stated: "The objective was to design a CAC so that a minority group of creditors cannot block the efficient financial operation of an issuer once it reached an agreement with a significant majority of its creditors."
Indeed, these attorney-level discussions in some ways continued the strictly silver talks that have so far concentrated videoconferencing and zooming between officials and bondholders.
Beyond the burning language of the latest statements issued by creditors groups, the impression seems to prevail in the market that the distance between Argentina and the bondholders has narrowed considerably , or there will be a desire to reduce it in the coming days.
In fact it is mentioned that one of the ingredients that were introduced in the offer goes through a payment that is triggered if the country risk falls to a certain level. The fall in country risk would be associated with an improvement in the general economic situation and, therefore, with the possibility that the Government may once again access the voluntary debt market. (see more information in the Economic Supplement).
The country risk indicator is impossible for any government to touch, and it is seen that creditors are more reliable than any variable (Indec or volume of exports) that is in the hands of the Argentine government.
An interesting analysis is made by C onsultara 1816 . In their opinion, the agreement "cannot be escaped" , and they focus on the fact that the payment flows proposed by the Government do not differ much from what the creditors propose. And they explain it like this:
- The capital and interest maturity curves proposed by the Government are similar to those offered by bondholders.
- The distance between government and bondholders is reduced to 1% of GDP accumulating the cash flows until the last bond matures. That point of GDP is equivalent to a fiscal effort of only 0.05% of GDP per year.
- The bondholders claim only $ 3.800 million payments during the remainder of the mandate of Alberto Fernández. The Government offers to pay US $ 1.7 billion. Little money for the size of the Argentine economy and for what it means to avoid default.
This is the photo today. The account that could also be done is how much the financial variables would improve once an agreement was signed . With a credible economic plan in the eyes of the markets, it should not only lower country risk. All assets would be revalued. Not just bonds or stocks. Also the heritage of Argentines, from the value of companies, large or small, and to the homes and apartments of each citizen, without going any further.
All this depends, today, on the Government deciding to sign an agreement with the bondholders. And leave behind the risk of default.