While the talks to try a debt restructuring governed by foreign courts lengthens the maturity schedule, it does not stop. For the next few days, interest payments on various securities were scheduled, among which the different series of Discount bonds issued in the 2005 exchange stand out. The papers are those that have the most favorable legal provisions for creditors and are in the hands of the most belligerent bondholders, with whom today the Minister of Economy Martín Guzmán admitted that there are still “economic and legal differences”,
For this Monday, June 28, the payment of interest on the Centennial Bond was planned, an emblem among Mauricio Macri’s government debt issues. Issued in June 2017 by the then Minister of Finance Luis Caputo, the paper expires in the year 2117 and its launch had very different receptions depending on the side of the crack since it is seen. For the markets, it was, initially, a test of the enormous confidence that investors deposited in a country that had only managed to achieve default from a year earlier and was now obtaining long-term financing at rates that were previously unimaginable.
Instead, the issue ended up being the most forceful example of the short life the market faith had in the Macrista reform project. Less than a year after its issuance, in April 2018, Argentina fell into a balance of payments crisis that triggered the value of the dollar and plunged the economy into a sudden brake that, to this day, does not allow it the country out of recession.
The Centennial should pay USD 98 million on Monday, which, as it happened with the payment of three global titles that expired on April 22, will not be paid and the 30-calendar-day grace period will begin to run before that issue is in default.
Among the series governed by foreign law, according to the original scheme prior to the Argentine Treasury falling into default, The payment of three series of the Discount bond with maturity in 2033, governed by foreign courts, is scheduled for June 30. In fact, on the same date there are also maturities for USD 300 million of the same issue, but issued under local law. That expiration has already been officially reprofiled.
Those three Discount Bonuses governed by courts in New York, the United Kingdom and Japan, total USD 452 million in interest they will not be disbursed either. These roles are different from those that were breached in April.
Last April 22, USD 502 million of three bonds, Global 2021, 2026 and 2046 were due. They were payments of USD 155 million, USD 244 million and USD 105 million, respectively, which did not materialize and, 30 days later, officially fell in default. Failure to comply created the possibility that holders of these issues, with at least 25% of the capital issued in one of those series in hand, could claim the trustee the acceleration of the issue: that is, make all future maturities of a bond immediately callable.
With the main holding funds of those three global bonds sitting at the negotiating table, the incentive to accelerate was less, at least until then. The acceleration would be practically a rupture – it can actually be remedied if an agreement is later reached, but in principle it would be a decision that would make the talks between the parties more hostile – of the negotiations.
The question from now on will be the attitude of the holders of Discount bonds issued in the exchanges of 2005 and 2010. After the original payment date has passed, the usual 30-day grace period will begin to run until December 30. July. At that time, the exchange titles will also be in default.
The main representatives of the holders of this type of bond are currently the funds organized around the Exchange Bondholders Group, advised by attorney Dennis Hranitzky, who has already litigated Argentina at trial pari passu that forced the country into default. This group of bondholders is currently the most belligerent.
A detail that analysts point out as relevant is that the current expiration date of the offer to restructure Argentina’s debt is set for July 24, before the grace period for the swap bonds runs out..
“Although once you defaulted the Global bonds you are already in cross default, so emissions can be accelerated, but as a signal it would be very strong for the grace period to be triggered because it would indicate that you are taking too long,” he said. Juan Ignacio Paolicchi, from EcoGo.
Around the legal conditions in which the 2005 exchange bonds were issued, at a time when the Minister of Economy was Roberto Lavagna and the president Nestor Kirchner, turns a good part of the reasons that today lock an agreement to close the debt swap. Prior to trial pari passu, the prospectuses of issuance of the exchange titles do not incorporate the lessons learned in the courts that New York judge Thomas Griesa knew how to preside over. And, in addition, they include more demanding collective action clauses than the bonds issued from 2016.
In order to restructure titles after 2016, the Government needs, broadly speaking, the agreement of holders of those papers that together add up to at least 75% of the issued capital. In this way, those bondholders who remain in the minority position will be forced to accept the terms of the exchange against their will, minimizing the possibility that small free riders hold lawsuits that allow them to undo the restructuring operation.
In the case of the bonds issued in 2005 and 2010, on the other hand, the collective action clauses require that 85% of the issued capital enter the swap, a much more difficult number to reach and that allows players to have in their hands minus 16% of the total issued – a threshold than the Exchange Bondholder Group says reach-have blocking capacity. Only with those votes can you avoid triggering the clauses.