Major holdout creditors have agreed not to interfere with Argentina’s attempts to raise funds in the international capital markets, paving the way for the sovereign to print up to $15bn in cross-border and local bonds to fund a settlement with bondholders.

A deal would curb the dispute between Argentina and holdout creditors, opening up opportunities for the country’s first foray in the international capital markets since 2001.  

“There
are Latin American countries sticking with very prudent policy management
approaches like Mexico, but these credits are widely owned by investors.
Argentina is a very special situation right now,” a California-based investor told LatinFinance. 

“With Argentina’s political transition, investors started reducing their underweight positions. There are funds that are significantly underexposed to Argentina, so there is space in emerging market debt portfolios to absorb and increase allocations to Argentina,” the investor said.

The investor said the cost-benefit analysis of participating in a large New York law sovereign bond offering is a bet that Argentina will become a double-B type of credit in the near future. Argentine bonds are currently trading wide of double-B credits but they have room for spread compression, the investor said.

Investors and bankers expect sufficient demand for Argentine sovereign bonds in size and for the market to absorb new supply, but only at the right price.

With Argentina’s dollar discount bonds trading at yields close to 8.5%, printing at a level higher than 9% would be a little too aggressive. At the same time, a 7% handle would be too tight for some investors. A middle ground would be somewhere in the 8% pricing context, sources said.

“At around $10bn across several tranches, I don’t know if it will come in as high as 9%, but the market will want an 8% handle,” said a New York-based investor. “Argentina would love to get this done in April, but it will depend on the markets.”

An emerging market debt syndicated banker said the Argentine government wants to tap the market in April. “There is an overhang of $15bn in supply for the sovereign to complete and it doesn’t include supply from corporate entities, provinces and banks,” he said.

Argentina has a April 14 deadline to pay back restructured debt in cash.

Moody’s, which gives Argentina a Caa1 issuer rating, said reaching an agreement with the holdout creditors is necessary for the country to regain access to funding options in the international capital markets. Argentina’s fiscal deficit could end the year at almost 5% of GDP in 2016, according to Moody’s.

Before Argentina can return to the capital markets, the legislature has to endorse the agreement and repeal a 2005 law that prohibits the government from making payments to holdout creditors.

The announcement of an agreement in principle this week followed a decision by US District Judge Thomas Griesa to potentially lift injunctions against Argentina in response to the “good will” that President Mauricio Macri’s administration had shown by renewing negotiations with bondholders.

The question is now whether Griesa will make an exception for Argentina to issue debt in cross-border markets to pay the holdout creditors, or whether the government will be forced to tap the local market or dip into its reserves, analysts said. 

If the agreement to pay $4.653bn and settle all claims with the major holdout creditors goes through, the funds managed by Elliott Management, Aurelius Capital, Davidson Kempner and Bracebridge Capital will receive 75% of their full judgments, including principal and interest, plus a payment to settle claims outside the court.

HSBC, JPMorgan and Santander, which contributed $1bn each for a one-year $5bn bridge loan to Argentina’s central bank are thought to be top contenders to be mandated for a new sovereign offering, sources said. BBVA, Citi, Deutsche Bank and UBS have also lent $500m apiece.

“The banks likely involved in the central bank facility, though it is a separate entity, are most likely to lead the bond deal,” a syndicate banker said.

Before reaching an agreement with the major holdout creditors, Argentina had struck deals with five holdout creditors for $455m as well as Capital Markets Financial Services for $110m and hedge funds EM Limited and Montreux Partners for $1.132bn.