Argentina's Default-Riddled Past Flagged in Bond Sale Pitch

  • Country proposes sale of bonds maturing in 2021, 2026, 2046
  • New debt will be governed under New York jurisdiction

As Argentina prepares amid much fanfare its first international bond sale since a record default 15 years ago, a little reminder of its less-than-stellar financial past crept into its sales pitch. On page 8 of the 266-page prospectus, a paragraph states that "from time to time, the Republic carries out debt-restructuring transactions."

Yes, it does. For while a section on past problems may be standard in bond-offering pitches, the details that follow in Argentina’s case are not. There have been three restructurings in the past 23 years alone, the document, which was seen by Bloomberg, goes on to say.

"It does make you wonder if transparency has gone almost to the point of humor," said Gabriel Sterne, the head of macro research at Oxford Economics Ltd. in London, when told of how the document was phrased. "The interesting thing is if they’ve put it in there so that if it ever came to another legal case they could say, well, we told you.”

That past is doing little right now to curb enthusiasm for the offering, which is tentatively slated to total about $12 billion of bonds, issued under New York law according to the prospectus. With new President Mauricio Macri drastically scaling back the government’s intervention in the economy and quickly reaching a crucial settlement with holdout creditors from the 2001 default, Argentina has become a market darling surrounded by troubled economies in Latin America and the broader developing world.

Investor Interest

Several dozen London-based fund managers attended meetings with Argentine officials on Monday at a hotel in an ostentatious 100-year-old building in London’s Holborn district. The prospectus obtained by Bloomberg was in preliminary format, leaving blank spaces for details on transaction size and timing of the deal.

The Argentine delegation, which included Undersecretary of Finance Santiago Bausili and Finance Cabinet Chief Vladimir Werning, both of whom gave up Wall Street jobs to join Macri’s government after his election in November, outlined plans to sell the bonds in three tranches. Werning declined to comment on the sale when approached by Bloomberg outside the London meeting where investors were treated to a three-course fish lunch.

The country is looking to issue debt due in 2021, 2026 and 2046, according to the prospectus. The government aims to sell bonds yielding between 7.5 and 8 percent, Finance Minister Alfonso Prat-Gay said in a presentation to congress March 4.

Legal Wrangles

"The deal should generate a lot of interest if priced generously," said Claudia Calich, a London-based money manager at M&G Ltd., who attended one of the London meetings. Argentina will need to look beyond investors specializing in emerging markets in order to find enough capital to cover all its planned issuance, she said.

Proceeds from the sale will be used to pay for settlements with the holdout creditors, whose lawsuits have kept the country locked out of overseas markets since the default.

According to Argentine law, the government will only be able to pay the holdouts with the proceeds of the sale if a New York Appeals Court decides not to overturn a judge’s decision that drops injunctions blocking Argentina from international debt market. The court will begin to hear the case April 13, one day before Argentina has to pay creditors it already has an agreement with. Prat-Gay asked the Appeals Court to expedite the decision and announce it on the day of the oral argument or as soon after as possible.

"As a nation, we are committed to meeting the settlement obligations we have undertaken to date, which now total over $8 billion," he wrote in a letter to the court Monday. "Our capital raise is poised and ready to go, globally, but cannot happen without swift clarity from this court."

Investor Caution

Government officials have said they won’t pay holdout creditors with expired statute of limitations on their bonds, and road show-attendee Oliver Butt, a partner at City & Continental LLP in London, said this may affect demand for the new bonds.

“I would not buy any new Argentine bonds if they try to wriggle out of paying some existing bondholders, as everyone should be treated fairly and equally,” he said. “Argentina should not try to avoid paying some holders of bonds under the pretense of untested Statute of Limitations laws.”

The prospectus said the new bonds will include collective-action clauses allowing the government to "amend certain key terms of each series of bonds, including the maturity date, interest rate and other terms, with the consent of less than all of the holders." Such provisions prevent small groups of investors from rejecting a restructuring agreement reached by the majority in the hope that they might be able to hold out for better terms, which was a key issue for Argentina after its 2001 default.

Apart from London, Argentine officials are scheduled to meet with investors in New York, Boston, Washington and Los Angeles.

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