A telephone conversation between Alberto Fernández and Martín Guzmán served yesterday to finalize the details of the offer to the bondholders that will be published today in the Official Gazette with the signature of the President, the Minister of the Economy and the head of the Cabinet, Santiago Cafiero.
The $ 66 billion restructuring proposal strikes a balance between the aspirations of investment funds and the government’s political decision to avoid default. “It is what we can offer. Not one more weight ”, Alberto Fernández in Olivos explained.
Alberto Fernández and Guzmán offer a restructuring initiative that does not yet have the necessary membership percentages among private creditors to block the possibility of a default lawsuit in Manhattan courts.
In this sense, yesterday, the President and his minister had a telephone conversation to adjust the strategy that allows compliance with the percentages set forth in the Collective Action Clauses (CACs).) that establish the bonds issued during the administrations of Néstor Kirchner and Mauricio Macri.
If Alberto Fernández and Guzmán do not achieve 75 percent of the accessions on the Kirchner bonds and 66 percent of accessions on the Macri bonds, the debt restructuring failed and Argentina goes nonstop to a new default judgment.
« A key to negotiation is time », explains the Minister of Economy to his staff. And so yesterday, together with the President, it was decided that the debt negotiation period will extend from July 24 to August 31.
Summer vacations began in the United States and Europe, an unavoidable circumstance that added to the pandemic crisis complicates the negotiation with bondholders who still hesitate to adhere to the proposal that will be published today in the Official Gazette. If the votes are not yet in place to comply with the CACs, the government had no alternative but to extend the negotiation window for six weeks.
In financial terms, the official proposal comfortably approached the aspirations and claims of private creditors. It was a political decision made by Alberto Fernández to achieve consensus among investment funds and move one step closer to an economic program that is backed by central countries and multilateral credit organizations.
That thoughtful presidential decision unexpectedly collided with BlackRock and its powerful CEO Larry Fink., which has unlimited access to the Treasury Department, the State Department, the International Monetary Fund (IMF), the European Union (EU) and the White House. If Alberto Fernández and Guzmán do not reach an agreement with BlackRock and Fink, the possible restructuring is in danger.
The head of state and his economy minister have not yet fully understood why BlackRock fights Argentina’s proposal on foreign debt. They assume that there is an ego problem with a portfolio manager -which detests Guzmán-, but then they add that they opened other lines of communication with Fink -through Andrés Manuel López Obrador and Miguel Galuccio- and that they did little to get him back on track the conversations.
Faced with the reluctance of BlackRock, which influences the actions of the groups of creditors Ad Hoc and Exchange, Alberto Fernández and Guzmán designed a tactic with an uncertain ending: they intend to break those blocks of bondholders, explaining that a point of consensus can be found without « Winners or expired » and close a deal beneficial to both parties.
From this perspective, the head of state and his economy minister can demonstrate that they approached positions to achieve a restructuring agreement. The offer to be released today has three clauses that favor BlackRock and Fink’s allies:
1. Recognizes the rights of the funds with bonds exchanged in 2005 and 2010.
2. It will pay the interest accrued until August 31, 2020, to the bondholders who adhere to the last offer that will be registered tomorrow with the SEC. In the first official offer, this economic benefit was not foreseen.
3. You will pay the coupons from September 1, 2021, when the original offer had been established on November 15, 2023.
The government’s predisposition to close a deal with private creditors also involved crossing the limits of the IMF’s recommendations on the sustainability of Argentina’s external debt. Kristalina Georgieva, after two telephone contacts with Alberto Fernández and Guzmán, ordered the writing of a report to the IMF staff recommending that the agreement with the funds should not establish a Net Present Value (NPV) of the bonds above $ 49.90.
The economy minister explained to the head of state two weeks ago that the NPV on bonds should be increased, if an agreement with private creditors was to be reached to avoid a default judgment. Alberto Fernández agreed with Guzmán’s recommendation and, from that moment, a new Net Present Value (NPV) was worked on in the Palace of the Treasury that would allow joining adhesions to the official proposal.
Guzmán commented on the decision to raise the NPV to the IMF authorities, and with no claims in sight, ordered his staff to start modeling a new equation to approach positions with investment funds. From this technical work, carried out in the last 15 days, the following clauses were reached that were published today in the Official Gazette:
1. The Net Present Value (NPV) will be close to $ 53.4 for each one hundred dollar sheet. And in the case of Exchange bonds, it will exceed $ 57 for each sheet of $ 100.
2. The concept of Minimun Participation is established: if 60 percent of the CACs are not reached, the exchange is not signed and everything is negotiated again.
3. The capital drawdown, which was an average of 5 percent, will now be zero for Exchange bonds and 3 percent for all other sovereign bonds.
Argentina’s official offer will be registered with the SEC tomorrow, and there will be a trading deadline that will last until August 31. Alberto Fernández and Guzmán have expectations of closing an agreement with private creditors. They recognize that it will be complicated with M bonds – 66 percent of CAC’s are needed) and very complicated with K bonds (they establish 75 percent of CAC’s).
“Now we go to the field. Speculation is over « , said the President in Olivos. And he completed: we did everything to agree and avoid default ”.