first questions of the Argentine proposal to the bondholders

Finally, the Government published the details of the offer for international bondholders. The proposal has not yet been approved by the SEC (the regulatory entity of the United States capital market) and that is why the country launched a “press release“without the signature of the lawyers (Cleary Gottlieb Steen & Hamilton) or advisory banks (Lazard, HSBC and Bank of America).

Beyond that technicality, What first caught the attention of debt restructuring specialists is that the country will not earn interest (it does not capitalize) until 2022. In other words, from the time the bonds are issued and until November 15, 2022, the payment to creditors it’s zero.

To make matters worse, they just start charging “something” starting in 2023 (when the grace period ends). Somehow, Martín Guzmán It is proposing to debt holders that the value of time in money the country owes them is fading. A boldness of the academic of the Columbia University.

“Here you have a difference between what the market wants and what the government wants in more than 10 dollars in present value. In other words, for the market this is worth between 35 and 40 dollars for every 100 that is due, taking a discount rate of 11%; while for Guzmán this is worth 50 because they take a rate of 7%. The difference is not less, “said a former debt negotiator, sharpening the pencil after reading the Argentine presentation.

“You have a difference to start. In addition, the structure of not receiving a payment or accruing interest for two years is very hard for creditors. I think that if there is no will to negotiate there will be no agreement,” he shot.

¿What are the other keys from the presentation the government made on Friday night? The following:

-Are issued 5 new bonds in dollars and 5 in euros, with increasing rates up to 4.87% for the longest.

-Bonuses Discount (from the exchange of 2005 and 2010) are exchanged for other titles until 2039, while the Pairs They will be exchanged for instruments by 2036.

-Of the “bonds Macri“Shorts and mediums that will go to 2030 and 2036 will have priority (but there will be a proration), and what does not go there will go to 2047.

-Between the issue date of the new bonds and November 15, 2022 there are no interests or anything. And after that date you start to capitalize the rates.

-Fhigh an important data such as the proration factor of the “Macri bonds” and how they will choose the priority factor that says in the prospectus.

In any case, different research from investment banks will begin to appear, valuing the offer. All will appear on Monday, since in Wall street no one will refine the calculations over the weekend.

For now, the proposal is aggressive and will have to be negotiated. Javier Timerman, a financier who has known Wall Street for more than 30 years and is the owner of AdCap, slipped in a phrase that could well summarize the state of affairs between investors and Argentina: “Bondholders are also human beings. A few years ago, they were telling you that Argentina was going to be investment grade and now we tell you that we cannot pay anything.“

Hence, part of the negotiation must go through understanding what investors need and what economic program the Government can promise them. For now, there are only numbers and an offer to be valued. But, to bring positions closer, Guzmán should explain how he will make the country grow after the historic coronavirus pandemic passes.

“Want to force payments of debt unsustainable would mean an even greater burden. It would mean condemning millions more to poverty, unemployment, loss of opportunities and dreams. We need relief that allows us to grow so we can pay. We will make a commitment that we can meet, “Guzmán said Thursday. Now is the time to see what the margin of negotiation is.

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