Argentina’s Historic Holdout Histrionics

As Argentine stocks and bonds firmed awaiting the US Appeals court verdict on distressed fund exchange instrument repayment and pari passu clause interpretation, Moody’s released an overview of the past 15 years’ restructuring experience highlighting the case’s singularity. It found typically rapid workouts without creditor coordination difficulties or litigation in 35 examples across all emerging market regions. Only 3 other offers, in Cote D’Ivoire, the Dominican Republic and Russia took more than a year to complete, with civil war delaying the first and official lender negotiations slowing the last two. Creditor participation averaged 95 percent, with only Dominica confronting holdouts who later agreed to join. Outside Argentina just four court complaints were filed for the same number of countries, and litigation was not continuous. The complexity may have contributed to regular disputes, as the swap featured 150 bonds, and a half dozen governing laws and currencies and a diverse retail and institutional investor base. The default and 70 percent loss imposed correlates with a longer closing time. One-third of the deals had collective action provisions and exit consents for majority decision, with the latter changing non-financial terms in the tendered paper.  As to the current battle with Elliott Management which again rejected an offer along 2010 lines in light of the “lock law” barring improvements, observers continue to predict a negative ruling which may be mollified by staggered repayments excluding full past due interest. The option of establishing offshore routing for existing bondholders to avoid collection may not be available with covenant and logistical constraints, and a Supreme Court petition would likely be denied in the absence of constitutional issues unless the US executive branch would insist on the sovereign immunity and other determinations. Washington has already split engagement as it supported Argentina’s original New York filings but votes against development bank loans for investor-unfriendly policies which are also the target of legislation which advanced in the past Congress to ban capital market access altogether. Diplomatic protests have been lodged recently over President Christina Fernandez’s push for stricter media and judiciary control ahead of October elections, and the lack of progress on resolving YPF claims a year after Spanish assets were expropriated. Joint venture talks by oil giant Chevron have foundered on the impasse and environmental damages it faces in neighboring Ecuador.

The company intends to raise funds through tax amnesty promoting capital repatriation as foreign reserves dip below $40 billion with continued flight. The informal market peso premium has been double the official setting as lower soybean prices may dent the trade account. The primary budget surplus has disappeared and privately-forecast inflation is above 25 percent as the Commerce Minister admitted it as a “problem.” Reporting will not change soon to satisfy IMF statistical objections and a decade of Paris Club obligations remain outstanding as the stage fighting endures.