Congress Approved Debt Swap

ARGENTINA - In Brief 11 Sep 2014 by Esteban Fernandez Medrano

---

Minutes ago the Lower House approved the bill to reopen de debt swap with 134 votes in favor and 99 against. In our last market brief “Damage Control”, we briefly discussed the government’s main objectives regarding the debt-swap-reopening initiative: i.e. to allow debt holders to swap out of US jurisdiction and to change the entity in charge of making the debt payments, into a non US financial institution. The most relevant modification to the original initiative was that the Senate included the French jurisdiction in the reopening of the debt swap. I.e. a European jurisdiction, whose government and judicial system have shown a less lenient position towards the holdout strategy (i.e. to achieve a judicial bailout through the prohibition of honoring restructured debt). The objective to add this alternative jurisdiction is to offer investors a more attractive alternative to the Argentine one. An argument that is sometimes heard by restructured bondholders is that: “it makes little sense to jeopardize a long-term instrument with an unwanted jurisdiction (Argentina), just to secure ’some’ coupons”. This view suggests, in combination with sustained bond prices, that the market does not fear an acceleration of the restructured debt. Legal experts debate whether the newly proposed payment entity (Banco Nación Argentina Trust – BNAT) will be able to identify US bond holders and register payment. In a simplified manner the argument goes that US institutions might not cooperate with such entity as they might risk being considered in contempt if they facilitate financial information (such as ownership information of the bonds). But note that in the meantime, Judge Griesa had yes...