Settlement With Holdouts Unlikely Before 2015
BMI View: Argentina will likely find a way to resume coupon payments on its defaulted debt. However, the standoff between Argentina and holdout investors is likely to drag on until at least early 2015, when the government will face a reduced risk of cross-default claims from exchange bondholders. A prolonged period of uncertainty will reverse the positive strides the government made in H114 to bolster investor sentiment.
The Argentine government will resume payment on its restructured debt, following the July 30 expiration of a 30-day grace period after missing a coupon payment ( see 'Settlement With Holdouts Still Likely After Default', July 31). However, we see a growing likelihood that the standoff between Argentina and investors who have refused restructuring offers on defaulted debt - the so-called 'holdouts' - will stretch on until at least the beginning of 2015, when legal prohibitions on offering a better restructuring deal than that offered in 2010 will expire.
In that light, we view Argentine President Cristina FernÃ¡ndez de Kirchner's plan to submit a bill to congress offering bondholders the right to exchange their existing securities, which are governed under US law, for dollar-denominated local bonds governed under Argentina law, as unlikely to gain traction. Foremost, the potentially insurmountable legal complications involved in such an exchange make it unlikely to occur. Indeed, exchanging the restructured global bonds for local bonds would entail surpassing US court rulings prohibiting the relevant financial intermediaries in the US from participating in such a swap. Meanwhile, the majority of bondholders are likely to view the prospect of moving their bonds under Argentine law as unattractive, even in the context of the government's default. As such, we view the offer as a signal of the government's intention to continue delaying the resumption of substantive negotiations on a settlement for at least a few more months.
|Room For A Further Spike In Yields|
|Argentina - Restructured US Dollar 2033 Bond Yield, %|