Argentina may access the international capital markets for up to $8.2bn in new bonds to pay holdout creditors if congress approves the government’s proposal and if pari passu injunctions are lifted, analysts said.

“The government told bondholders that they will pay in cash, and the cash will need to come from the international capital markets. That is a tall order in this environment, where commodities are down and emerging markets are out of favor,” a chief economist told LatinFinance. 

The economist said Argentina will try to access funds from the international capital markets over the next few weeks or months, as long as the government comes to an agreement with holdout creditors.

A capital markets transaction would test market appetite for Argentine debt amid broader market volatility, when even higher quality issuers have had to pay a premium for debt financing this year. 

“Argentina is an improving story with ratings momentum and there would be natural demand,” a New York-based investor said. 

The investor said Argentina will need to offer a concession to Brazil’s sovereign bonds and start testing investors in the 9% range, much higher than the 6% to 7% levels seen on the sovereign’s Bonar bonds. “They could start in the high 8s and if there is momentum, they could maybe get low 8s, but they need to start socializing at closer to 9%.”

Barclays said Argentina’s settlement proposal implies $7.5bn to $8.2bn in bond supply with the potential to issue all of it in the US or in a mix of dollars and euros.

A London-based portfolio manager said there will need to be demand for Argentine risk to cope with the new supply expectations. “The question is if there is too much issuance, given how tight valuations are, and another question mark about these instruments is if once they normalize will those bonds play catch up with the secondary performance of the rest of the market.”

Before Argentina is able to emerge from default and access the capital markets, it needs to lift the pari passu injunction through a request to the court or through a holdout creditor agreement. Congress also needs to approve the government’s settlement with holdout creditors before the country can issue bonds.

If the government does not reach an agreement with the holdout creditors, it could turn to the IMF for financing or draw upon a $5bn bridge loan it recently received from seven international banks, Barclays said. Barclays also said that congress is likely to approve the proposal soon and that chances are high that the pari passu injunctions will be lifted.  

So far, two out of six of Argentina’s largest holdout creditors have agreed to the government’s offer. Argentine authorities have offered to pay 72.5 cents on the dollar to pari passu holdouts on the monetary claim if the offer is accepted by creditors before February 19, or 70 cents if they accept after that date. The government has offered non-pari passu holdouts $1.50 for $1 of original notional.

“The proposed haircut of 27.5-30% of the total claim for pari passu injunction holders is affordable for the administration,” Barclays said in a report. “The holdout creditors have a strong monetary incentive to agree by February 19.”

Argentina offered last week to pay $6.5bn in cash to US holdout creditors of the country’s 2005 and 2010 debt restructuring.