News Center

Crisis in the markets puts in doubt the US$1 billion that would enter into the swap
El Cronista
February 08, 2010

It would be the bond that the large funds would have to subscribe to in order to enter the operation. Argentina's interest rate is 12%, unacceptable for the government. They believe they can turn it around.

LEANDRO GABIN Buenos Aires

The financial nervousness set off by the situation in various European countries, the numbers from the U.S. that also don't end up being convincing, added to the local upheaval, made yields on Argentina bonds to rise several scales. Due to this conjuncture, the plan to obtain financing of US$1 billion through the debt swap has been clouded. It so happens that Economy had placed as a condition for entering the operation that the large funds subscribe to a new bond by paying cash. The interest rate that Amado Boudou had in mind would be lightly less than two digits, around 9 to 9.5%. The drop in the markets, and in Argentine bonds, made this interest rate virtually impossible to get day by day. However, at the Palacio de Hacienda they believe that the international situation will reverse (or at least there won't be a new Lehman Brothers) and that will allow for emitting this bond at reasonable rates. The bond that they are using as a parameter is the Boden 2012, which last Friday closed with a yield of 12.5%.

In official corridors they are drawing up some scenarios. One, that the markets recover and that during the next four weeks that remain before launching the operation, the yields on bonds fall and allow for this financing to come in. Two, that as the time of the operation nears, the "swap effect" will cause Argentine bonds to rise, lowering yields. The third scenario, which day by day is not the one that Economy is looking at, is that the financial storms continue and that makes the emission of the US$1 billion fall to a later date. Something intermediary is that they don't emit the amount they initially planned for but something less, to not allow a high interest rate.

In any of the three options, they say, the swap itself will not undergo modifications and - they say -- "it will be a success." It happens that the large funds alone, precisely those that are pushing for the operation to happen and that reaching US$14 billion, they represent around 70% of the debt. With some participation of the small investors (which come to US$3 billion) the level of acceptance would be sufficiently high to end the story of the default.

For the technical team at the ministry, the importance of the new bond that would come out for the payment of cash from the investors is that it will represent a test emission in the market. Also, as it will be a bond under international jurisdiction, it will form part of the EMBI (the index of emerging bond from JP Morgan) and will allow for the creating of the yield curve for Argentina.

The schedule that the Palacio de Hacienda is keeping is that before the end of February they could finish the presentations before the regulators. In the US there could be "more back and forth" while in Japan they are quite far along, also in Luxembourg. In four weeks, already with the offer prospectus, they could hold the roadshow of the operation that will last a week. The swap will be open in a month.

Finally, two bonds would be emitted: the Discount for the principal owed (minus a haircut) and a new one that will be for paying past-due interest and - if things follow as Economy believes - the new money. The past payments of the GDP coupon will not be in the offer but it will still be, they say, "sufficiently attractive to guarantee success."

U.S. Government
Takes Action

Click here to view letters by the Administration and Members of Congress on Argentina's debt and economic policies.

The Debt and Europe

Click Here To Read More

ATFA Member Spotlight

Resolution on Argentina's Generalized System of Preferences Status (GSP)

Click here to view other ATFA member activity

Join Us
Show your support for ATFA and our work regarding debt default by joining our growing list of supporters.

Tell Your Friends
Do you have friends or colleagues who would be interested in supporting ATFA? Send them an invitation to this site by clicking here.