In its bid to end the conflict with the holdouts that have been litigating against the country for 15 years over defaulted bonds, Argentina is set to issue a record US $15 billion in bonds in the international market starting today, with securities that mature in three, five, 10 and 30 years. The proceeds from these bonds will be used to pay off the holdouts by Friday April 22nd.
“If you haven’t done [so], you might as well call your broker because the demand is awesome,” said Finance Minister Alfonso Prat-Gay at an event in Georgetown, Washington DC, last Thursday. Yes, he said “awesome.”
Last Wednesday, the US Court of Appeals ruled to lift an injunction called the “stay,” which prevented Argentina from paying its national debt unless it reached an agreement with the holdouts. Argentina’s Congress approved the elimination of two laws that also acted as an obstacle to paying off the holdouts — the Lock Law and the Sovereign Payment Law — the week before. So the country is now clear to begin paying off the vultures.
Following last Wednesday’s ruling, credit rating agency Moody’s upgraded Argentina’s issuer rating from Caa1 — meaning “in default” — to B3 — meaning “very speculative credit” — which could help to sell the bonds. According to the Financial Times, Argentina’s US $15 billion plan is oversubscribed, meaning that there are more buyers than issued shares. This may be due to the fact that Argentina’s return to the international market has been highly anticipated: the 10-year bonds allegedly enjoy a particular popularity among investors.
Although US $15 billion will be sold, US $8.5 billion will be destined to the holdouts themselves as agreed upon with the mediation of Special Master (mediator) Daniel Pollack. The rest of the proceeds will be used to pay past due interest to bondholders with restructured bonds as well as national infrastructure works in Argentina. There are also other bondholders that have not yet reached an agreement with the Argentine government that would account for another US $3.5 billion.
After Argentina’s economic meltdown in 2001, the country defaulted on its international debt. A group of creditors purchased some of the defaulted bonds and refused to accept debt restructuring plans in 2005 and 2010 that would have exchanged the original bonds for bonds worth 30 cents on the dollar, insisting instead the debt be repaid in full. Argentina has been locked in a legal battle ever since and therefore last Wednesday’s ruling is a historic one because it means that Argentina is now in a position to pay off its debt and subsequently re-enter international markets.