Singer Deal Bets Extend Bond Sale Waiting Game: Argentina Credit

Even with borrowing costs at three-year lows, Argentine companies and provinces are holding off on issuing dollar-denominated bonds, anticipating a settlement with the nation’s holdout creditors will reduce yields even further.

An agreement to resolve claims from Argentina’s default in 2001 is poised to unleash as much as $2 billion in sales this year, according to Federico Tomasevich, the president of Puente Hnos. Sociedad de Bolsa SA, the country’s largest underwriter of provincial debt. That would be the most in the second half of a year since 2010, data compiled by Bloomberg show.

“Argentine corporate and sub-sovereign issuers are waiting for a favorable solution to the holdouts case, which the market is pricing will come soon, to get better financing conditions,” Tomasevich said by phone.

While yields on corporate bonds have tumbled almost 2 percentage points to 8.1 percent since state-controlled YPF SA issued $1 billion of debt securities on April 1, there haven’t been any bond sales since. Argentina’s President Cristina Fernandez de Kirchner has until the end of the month to reach a settlement with billionaire hedge fund manager Paul Singer to avert a default on its restructured bonds. A U.S. court blocked payments on the debt June 30, saying they would violate a ruling favoring the holdouts who sued for full repayment.

Waiting Game

At least 10 companies and provinces are ready to sell bonds for an average of $100 million to $200 million each after a settlement is reached, Tomasevich said. His Buenos Aires-based firm has mandates for three of those offerings, he said.

YPF, the state-run energy producer, sold 10-year dollar notes when the average yield for Argentine companies was 9.91 percent, according to JPMorgan Chase & Co.’s CEMBI index.

The provinces of Buenos Aires and Mendoza both delayed plans to sell bonds abroad earlier this year after borrowing costs rose on speculation Argentina would opt to default on creditors who accepted new bonds in 2005 and 2010 at losses of 70 percent, rather than pay holders who refused to offer the nation relief.

Buenos Aires is ready to issue $500 million of debt once the issue is resolved, Eduardo Levy Yeyati, director of Elypsis, which consults the regional government, said in an interview.

“They’re waiting for a window to be able to go out and sell that day,” Yeyati said. “Everything is ready.”

Court Mediator

Argentine officials met twice with the court-appointed mediator Daniel Pollack in New York last week. The government said it’s seeking conditions that are fair to all bondholders, including those who own the restructured bonds.

The nation is also asking for a suspension of the court ruling that ordered Argentina to pay holders of its defaulted bonds when it pays restructured debt.

U.S. District Court Judge Thomas Griesa blocked payment to holders of Argentine dollar bonds due 2033, urging the nation and holdouts including Singer’s Elliott Management Corp. and Aurelius Capital Management LP to negotiate.

The so-called Discount bonds dropped 1.06 cent to 89.47 cents on the dollar at 2:49 p.m. New York time.

While representatives of NML Capital Ltd., the Elliott unit involved in litigation against Argentina, also met with mediator Pollack in Manhattan last week, there have been no direct talks between the two sides.

Argentine companies need the economy to strengthen before they step up bond sales, according to Marcelo Delmar, the head of Latin America Debt Capital Markets at BNP Paribas SA.

No Flood

“There’s a cue of transactions there, but I don’t think there will be a flood,” he said by telephone from New York. “As confidence returns and the economy grows, as companies need financing, then people start preparing transactions. That takes time. It doesn’t happen overnight.”

Argentina’s economy contracted for the first time in almost two years in the first quarter, shrinking 0.2 percent, while inflation quickened after a devaluation of the peso.

Companies and provinces have largely relied on local financing since the government seized YPF from Repsol SA in 2012, which caused borrowing costs to rise.

Since the nationalization, McDonald’s Corp. operator Arcos Dorados SA and YPF were the only companies that issued bonds. Dairy producer Mastellone Hermanos SA last month completed a debt swap for $200 million of debt.

Argentina paid Repsol $5 billion in government bonds this year and reached an agreement with the Paris Club of creditors to settle $9.7 billion of debt. The country hasn’t issued bonds in overseas markets since its $95 billion default and has turned to central bank reserves and state agencies for funding.

A resolution of the decade-long litigation will help restore market access for Argentina, Tomasevich said.

“With foreign capital, Argentina will stop depending on central bank reserves and the country risk will drop,” he said. “This will be a big step and prices show the market sees this happening very soon.”