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DE RUEHBU #1286/01 3282214
ZNR UUUUU ZZH
R 242212Z NOV 09
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 0094
INFO WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
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UNCLAS SECTION 01 OF 04 BUENOS AIRES 001286 
 
SENSITIVE 
SIPDIS 
SIPDIS 
TREASURY FOR WLINDQUIST, SAO PAULO FOR WBLOCK 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD AR
SUBJECT: Argentina: Unlikely to Achieve Aim of 2009 Holdout Deal 
 
REF: BUENOS AIRES 1198; BUENOS AIRES 1161 
 
------------ 
 
Summary 
 
------------ 
 
 
 
¶1.  (SBU) A key Argentine Ministry of Economy official explained 
that the GOA hopes to launch its offer to the holdouts from the 
2005 debt restructuring deal by December 15, in order to 
accommodate the desire of many institutional investors to clear the 
defaulted Argentine debt from their books before the end of the 
year.  While all involved are working hard to make this happen, it 
is unlikely, as time is short and much work remains to be done 
vis-????-vis the securities regulatory authorities in numerous 
countries.  When finally proposed, the deal is likely to have a net 
present value (NPV) of anywhere between 52 cents to the dollar of 
bonds held to 28 cents, depending on which of the components now 
being studied by the GOA make it into the final offer.  The GOA 
will interpret even an offer on the high end of this range as 
fulfilling the legal requirement that the new offer be worse than 
the earlier 2005 offer, since it would pay for some elements of it 
by issuing a new bond, rather than with cash, as in the 2005 deal. 
End Summary. 
 
 
 
----------------------------------------- 
 
GOA Moving on Holdouts Offer 
 
----------------------------------------- 
 
 
 
¶2.  (U) On November 18, Deputy EconCouns met with Norberto Lopez 
Isnardi (LI), the Director of the Office of Public Credit in the 
Ministry of Economy, the chief officer responsible for the 
technical aspects of the reopening of the 2005 debt restructuring 
deal to reach an agreement with the holdouts.  LI described the 
steps in the process as follows.  After a debate, the Congress 
approved the suspension of the Bolt Law ("Ley Cerrojo") on November 
¶18.  This triggered a number of events which will ultimately lead 
to the launching of a formal exchange offer to the holdouts. 
First, the suspension of the Bolt Law needs to officially become 
law with the President's signature and publication in the Official 
Gazette.  This generally takes about 10 working days.  Second, the 
President will have to sign a decree allowing the GOA to issue 
bonds under foreign-country law, which will be one aspect of the 
exchange transaction. 
 
 
 
------------------------ 
 
SEC Approval Key 
 
------------------------ 
 
 
 
¶3.  (SBU) Third, the GOA must hire an Exchange Agent to be 
 
BUENOS AIR 00001286  002 OF 004 
 
 
responsible for all of the complicated logistics involved in the 
implementation of the exchange.  In the 2005 debt restructuring, 
the Bank of New York was the agent.  Currently, the GOA is working 
to hire this bank again.  Fourth, it is necessary to complete the 
approval processes of all of the different regulatory agencies in 
the various countries in which investors will be involved.  The 
GOA's intention is to launch the transaction globally -- in all of 
the countries at the same time.  This may be difficult to do given 
that some of the regulatory agencies may take different amounts of 
time to approve the required paperwork.  LI noted, however, that 
once the U.S. Security and Exchange Commission (SEC) clears the 
documentation, other regulatory agencies around the world are 
likely to approve shortly thereafter, as happened in the 2005 debt 
restructuring process. 
 
 
 
--------------------------------- 
 
Much Paperwork Remains 
 
--------------------------------- 
 
 
 
¶4.  (U) The GOA has already filed an 18K at the SEC but it still 
needs to file the Prospectus Supplement of the offer, which 
includes all the mechanics and implementation issues involved in 
the transaction.  The three banks working on the agreement on 
behalf of the GOA (Barclays, Citi, and Deutsche) need to file a 
document called the "Dealer Management Agreement," which is still 
in the works.  The GOA is working to file the equivalent of the 18K 
in Japan during the week of November 23.  It still needs to file 
the requisite paperwork submission for the EU in Luxemburg, where 
it will file the equivalent of the 18K for Europe plus the 
Prospectus Supplement. The filing in Luxemburg should cover all of 
Europe.  However, it is unclear if Italy will accept the Luxembourg 
submission or will require a separate filing. 
 
 
 
--------------------------------------------- ------ 
 
Institutional Investors Want a 2009 Deal 
 
--------------------------------------------- ----- 
 
 
 
¶5.  (U) According to LI, the SEC requires a maximum of thirty days 
to review and comment on the Prospectus Supplement.  However, it 
may take as little as two weeks, which would still enable the GOA 
to launch the offer before its December 15 target date.  If the 
approval process goes beyond December 15, it will likely not be 
possible to launch an offer in 2009, as the holiday season around 
the world and the summer travel season in Argentina would be too 
close.  LI acknowledged that it may be too ambitious to expect an 
offer to be launched by December 15.  However, he did not dismiss 
the possibility, saying that the institutional investors who are 
willing to participate would prefer to have the offer launched and 
settled before the end of the year to avoid, if possible, carrying 
an open position in GOA defaulted debt into the new year.  The GOA 
would also like as much of the deal as possible to happen during 
the current year. 
 
BUENOS AIR 00001286  003 OF 004 
 
 
--------------------------------------------- ------------- 
 
GOA Encouraging Retail Investor Participation 
 
--------------------------------------------- ------------- 
 
 
 
¶6.  (U) Without getting into specific details of the offer, LI 
alluded to some issues currently being analyzed by the GOA.  One is 
the possibility of an early submission period before the end of the 
year of about a week to accommodate the preference of institutional 
investors to settle the transaction prior to the end of the year. 
Retail investors would also be allowed to participate during this 
period.  However, the GOA believes that retail investors will 
prefer to participate over the course of a normal submission 
period, which could last for about five weeks.  Having two 
submission periods would accommodate the needs of both types of 
investors, and - the GOA hopes - increase the overall participation 
rate.  In a further effort to encourage the participation of retail 
investors, the GOA is studying the possibility of issuing a 
shorter-maturity but lower coupon bond as part of the deal.  LI 
stressed that the GOA considers it very important that there be 
high retail investor participation and is putting a good deal of 
effort into tailoring the proposal to be more attractive to this 
group of bondholders. 
 
 
 
------------------------------------------ 
 
Components of Deal Still Unclear 
 
------------------------------------------ 
 
 
 
¶7.  (SBU) LI said that the GOA is considering making an offer 
composed of four possible components - an equivalent to the 
long-maturity discount bond issued in the 2005 restructuring; a new 
shorter-maturity bond with a relatively low interest rate; past due 
interest -PDI-to be paid for by the issuance of new bonds; and a 
GDP warrant.  However, it is not clear if all of these pieces will 
make it into the final offer.  Depending on which elements are 
finally included, the worth of the offer comes in at a net present 
value (NPV) somewhere between 52 cents to a dollar of original 
principle at present market prices with all of the components 
included to 28 cents, when excluding PDI and a GDP warrant.  A NPV 
of 52 cents would obviously be better for investors in present 
value terms compared to the original 2005 offer.  However, LI 
argued that the GOA could still interpret the offer as fulfilling 
the legal requirement that it be worse than the 2005 offer, since, 
from its point-of-view, the GOA would pay PDI and dividends on the 
GDP warrants with a bond rather than with cash.  Investors who 
participate in the 2005 exchange would therefore have no incentive 
to resubmit their bonds to participate in the new exchange.  As for 
the interest rate the GOA will have to pay on the new bonds to be 
issued in return for the new cash put up by the investors in the 
transaction, LI acknowledged that Economy Minister Boudou's 
previously-expressed desire that the yield reach the single-digit 
level is unlikely to be fulfilled. 
 
 
 
--------------------------------------------- 
 
BUENOS AIR 00001286  004 OF 004 
 
 
Difficult to Know Who Holds What 
 
--------------------------------------------- 
 
 
 
¶8.  (U) Although noting that it is impossible to know for sure, LI 
said that of the $20 billion face value in bonds controlled by the 
holdouts, the GOA estimates that about 40% ($8 billion) is held by 
retail investors and 60% ($12 billion) by institutional investors. 
According to LI, institutional investors who control about $8-9 
billion have already committed to the three banks handling the 
transaction to participate.  Those -- mainly vulture funds -- 
looking to the courts for a solution account for about $3-3.5 
billion.  LI noted, however, that it is very difficult to 
accurately estimate the sums held by the different classes of 
investors, since Italian investors, who have filed claims at the 
International Center for the Settlement of Investment Disputes 
(ICSID) do not need to prove ownership before filing ICSID claims. 
Consequently, the value of the claims ultimately filed by Italian 
investors in the proposed restructuring - when they do have to 
prove ownership very clearly -- may be considerably lower than the 
amount they filed for in ICSID claims.  Also, the value of the 
bonds controlled by retail investors is also unclear, since many of 
the original retail investors are assumed to have sold most, if not 
all, of their holdings. 
MARTINEZ