Category: Corporate & Sovereign Strategy

The Dominican Republic has renegotiated $950 million in foreign bonds as part of an International Monetary Fund-backed debt restructuring plan. The debt represents more than 90 percent of the $1.1 billion in sovereign bonds that the government has been trying to renegotiate with the Paris Club and other foreign creditors. One set of bonds worth $500 million, which had been set to expire in 2006, will now expire in 2011. Another $600 million in bonds that had been set to expire in 2013 are being swapped for debt that will expire in 2018.

Argentina’s plans to start issuing big chunks of debt again for the first time since 2001, when it declared the biggest sovereign default in modern history. It may seem surprising, bizarre even, that Argentina should be borrowing so soon since it last went bust. Yet the government today intends to sell $350 million in peso-denominated bonds on the local capital markets, mainly to Argentine banks and pension funds with few better investment options, plus a sprinkling of devil-may-care foreign hedge funds. This comes on top of about $18 billion in peso-denominated bonds it has issued since 2001 to compensate banks and domestic bondholders. The government will use the money from today’s issue to refinance maturing bonds, not increase its indebtedness.

Still, it is astonishing that investors would voluntarily buy these bonds. Clearly, few people can resist the overwhelming attraction of yield. Greed really is a stronger instinct than fear. And Argentina’s debt service bill is almost negligible following February’s debt swap. That deal leaves lots of room for more issuance. A Wall Street investment banker says without a trace of embarrassment that he could see the government returning to the global markets this year and easily raise money at only 500 basis points over US Treasuries. Later in the conversation the same banker said that under the leadership of President Néstor Kirchner “Argentina is spinning out into nothingness”.

Argentina still hasn’t closed the February deal. That deal, which slashes its bonded debt by roughly 75%, is on hold pending a decision from a New York appeals court over a case involving a small group of investors. They rejected the February deal and are holding out for a better deal. It is amazing, but true, that while one bunch of creditors is waiting to get paid, another bunch is lining up to buy fresh Argentine bonds.

Argentina has begun swapping defaulted bonds for new securities after overcoming legal challenges to the exchange that will end its four-year default. The debt exchange is a also condition for reviving a $13.3 billion loan accord with the International Monetary Fund, which abandoned talks almost a year ago pending the restructuring. Finance Secretary Guillermo said this month the country might resume selling international bonds after the restructuring.

Billionaire investor Kenneth Dart, who spurned an offer to swap defaulted Argentine bonds for new securities valued at 30 cents on the dollar, asked a US appeals court to prevent Argentina from exchanging $7 billion of government bonds for new debt. Dart hopes to seize those bonds to collect on a lower court ruling that Argentina owes him $700 million. The case is holding up Argentina’s $104 billion debt restructuring, which was scheduled to begin April 1.

Globo Comunicacoes e Participacoes, the unit of Brazilian conglomerate Globo that owns the group’s film and TV studios and its investments in cable television, has persuaded owners of 81 percent of $980 million of bonds to accept new bonds and cash for defaulted debt. Investors holding the remaining debt agreed to a similar swap in March. The accord, under negotiation since 2002, lets Globo avoid selling television stations put up as collateral.

US Treasury Secretary John Snow said the US would “engage” Argentina to push for a settlement with holdout creditors that own about $20 billion in defaulted Argentine bonds. In February Argentina persuaded holders of $62 billion of a total $82 billion of defaulted bonds to exchange for new securities worth about 30 cents on the dollar.

Argentina’s Economy Minister Roberto Lavagna rejected calls by the International Monetary Fund to hold further talks with bondholders who turned down the country’s debt restructuring offer. An IMF spokesman on April 8 said Argentina should “develop a realistic strategy” to resolve the demands of non-participating bondholders. Argentina earlier this year agreed to swap $62.3 billion in defaulted debt for new securities, which the country says ends its three-year default. About 20% of bondholders rejected terms and some are suing the government in US courts to demand full repayment.