Category: Corporate & Sovereign Strategy

Argentina paid about $680 million in interest on new bonds issued as part of a $104 billion debt swap, concluding the biggest sovereign restructuring in history. The interest payments are the first the government has made on foreign bonds since it defaulted in late 2001. Completion of the swap may help Argentina negotiate a new loan accord with the International Monetary Fund, a key to extending the country’s two-year economic expansion. Government officials have hinted that the country may soon try to issue new debt. S&P yesterday raised Argentina’s credit rating to B-, six levels below investment grade, from SD, or selective default.

Argentina’s credit rating was raised six levels by Standard & Poor’s to B-, clearing the way for the country to borrow again on international capital markets more than three years after defaulting on almost $100 billion of debt. Argentina has given signals that it’s preparing a return to the bond market as it nears completion of a restructuring of the defaulted debt. Finance Secretary Guillermo Nielsen told reporters on May 13 that the government “could go back to the markets sooner than people expect.”

There must be something very wrong with investors and the capital markets if a serial defaulter like Argentina can even consider returning to market soon after it ended a three-year […]

There must be something very wrong with investors and the capital markets if a serial defaulter like Argentina can even consider returning to market soon after it ended a three-year default, the biggest in modern history. Yet Argentina may indeed launch a benchmark bond in the next few months, and the crazy logic of emerging market investing makes the offering seem perfectly sensible.

Argentina has lightened its balance sheet by restructuring $74 billion in defaulted bonds. The new low-yielding, long-dated bonds it issued in the bond exchange mean the government can easily afford to issue new debt. New York investment banks hungry for mandates are more than willing to underwrite a new issue. The bonds would be priced at a tempting spread over US Treasuries. Emerging market portfolio managers would buy because they like the yield and see little immediate risk of default. Passive investors who track market indices would need to buy the bonds. Argentine corporate issuers would also benefit from sovereign issues that lay out a new yield curve.

So much for the rigid discipline that bond markets are meant to impose on irresponsible borrowers. Argentina scalped its bondholders but will soon be back at the table looking for more willing dupes. Of course, a lot of those buyers are sharp-witted hedge funds aiming to flip their Argentine bonds to gullible investors after taking profits. As always, buyer beware.

Argentina will require investors to keep their money in the country for at least 365 days, up from 180 days, to discourage an inflow of hot money after its debt restructuring. The government is worried that an increase in short-term capital flows will drive the peso up, hurting exports.

Ingenieros Civiles Asociados (ICA), Mexico’s largest construction company, has paid the final $95 million it owes creditors, ending a debt restructuring that began in 1999. ICA used the financing obtained under a recent $150 million bond issue by its Panamanian subsidiary to pay its restructured debts earlier than scheduled. The company reported a net profit of $6 million for the first quarter, up from an $8 million loss a year earlier.

Venezuela’s Customs and Tax Administration Service ordered local TV channel Globovisión to pay a $2.4 million fine, accusing it of failing to pay taxes on donations and defaulting the government. Globovisión executives called the fine an “outrage” and accused the Chavez administration of punishing the company for questioning government policies.

Argentina won a US appeals court ruling that allows the government to exchange defaulted bonds worth $7 billion for new debt and complete a four-year restructuring effort. Three US appeals court judges ruled unanimously to uphold a lower court decision that holders of Argentina’s defaulted debt have no rights to the bonds at the Bank of New York, the exchange agent for the swap. Billionaire investor Kenneth Dart was among plaintiffs who sought to keep the bonds frozen so they could collect compensation from the government.