Ex-Credit Suisse Banker Has a Plan for Argentina’s Bond Holdouts

A former Credit Suisse banker advising an Argentine presidential candidate aligned with President Cristina Fernandez de Kirchner says he has a plan for the country’s legal dispute with holders of defaulted bonds.

Hedge funds won’t be happy.

Marcelo Bosch, who left banking in 2007 and is the chief executive of state-run railroad Trenes Argentinos, says his idea is to save money by offering nothing new to the hedge funds that didn’t agree to debt swaps after a $95 billion default in 2001. The candidate he’s advising, Transport Minister Florencio Randazzo, trails Buenos Aires Governor Daniel Scioli in most polls before a primary slated for Aug. 9.

Bosch says if Randazzo becomes president, he should pay all of what’s owed to so-called holdouts who bought the defaulted debt near face value before the 2001 economic crisis. Billionaire Paul Singer’s Elliott Management and the other funds that make up the majority of holdout creditors -- and who Bosch refers to as “vultures” who bought the debt for as little as 15 cents on the dollar -- would be kept waiting. He thinks they’ll eventually give up and accept a long-standing offer for payouts similar to a restructuring in 2005 that imposed losses of about 70 percent for bondholders.

“We need to first pay those who bought at par in good faith to show respect for New York law,” Bosch said in an interview at his office in Buenos Aires. “The market will understand this and see it as a credit positive. While vultures wait, we can issue under local law to finance the government and use multilateral and Chinese loans.”

Blocked Payments

Officials at Elliott and Aurelius Capital Management, another holdout, declined to comment on Bosch’s remarks. Both firms have rejected terms of the previous restructuring on multiple occasions, including during talks before the default last year.

The debt standoff is among obstacles to reviving a flagging economy that Citigroup Inc. estimates will have a financing gap of about $22 billion next year. The legal dispute caused Argentina to default for a second time in 13 years in 2014 as a U.S. judge blocked Argentina’s payments on some foreign debt until the government reaches a deal with the holdouts. The country’s access to dollar-bond markets is restricted.

Randazzo, who has said he is the favored candidate of Fernandez, criticized Scioli on June 1 for comments made by an adviser saying he would pay holdout claims at about 70 cents on the dollar. Juan Belen, Randazzo’s spokesman, didn’t reply to calls and e-mails seeking comment on the plan drafted by Bosch.

GDP Warrants

While Scioli has backed Fernandez’s decision to reject the ruling, his chief economic adviser, Miguel Bein, said Argentina should negotiate with the holdouts. Opposition candidate Mauricio Macri has also said he would sit down with the creditors to find a solution.

Bosch also said Randazzo would take advantage of the current default to restructure so-called GDP warrants that may cost the government about $40 billion in payments over the next 18 years. The warrants, which were issued as part of debt restructuring in 2005 and 2010, have returned 43 percent a year on average between 2006 and 2013.

“Since we’ve been declared in default technically and legally, the prospectus clearly stipulates that the GDP coupon can be restructured,” Bosch said. His plan is to cap future payments on the securities to $10 billion.

Bosch, 43, worked at ING Groep NV in Buenos Aires and as a money manager for Credit Suisse in New York for six years before returning to Argentina in 2008. In 2013, he was hired by Randazzo to manage the nationalization of Argentina’s cargo railway system and led the restructuring of a $2.4 billion loan from China.

Voter Polls

Bosch declared a personal fortune of $4.4 million to the tax agency last year.

Randazzo would win 42.5 percent of votes in the primary if he is openly backed by Fernandez, according to an OPSM poll published May 25 that had a margin of error of 2.5 percentage points. Scioli, the governor of Buenos Aires province and a former vice president, had 51.5 percent support among likely primary voters.

The same poll gave Scioli 32.2 percent of intended votes against 29.9 percent for Buenos Aires Mayor Mauricio Macri of the opposition Pro party in an eventual first-round election on Oct. 25.

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