September 4, 2014 / 7:08 PM / 3 years ago

Argentina swap plan gets cold reception in New York

NEW YORK, Sept 4 (IFR) - Argentina’s plan to emerge from its second default in 13 years by swapping defaulted debt for new local-law bonds is receiving a cold reception in New York, where officials from the country’s finance ministry are meeting with investors.

“It was an exchange of views,” one fund manager who met with Argentina’s Finance Secretary Pablo Lopez this week told IFR on Thursday.

“They probably wanted to know whether we would participate in a swap with local law (bonds), but they didn’t ask the question directly. I pre-empted it by saying we wouldn‘t.”

The proposed exchange, which aims to bring Argentina’s debt out of the reach of US courts, was approved by Argentina’s Senate on Thursday and will be debated by the lower chamber next week.

But implementation faces a number of legal hurdles, as any third party assisting the country in carrying out the exchange risks being held in contempt of the US court.

Robert Cohen, a lawyer for lead holdout creditor NML Capital said during a conference call on Thursday that his firm will promptly act against any attempt to carry out the exchange.

“We will take appropriate steps to make sure that the plan is not implemented and that any third party who thinks it is appropriate to participate in such an exchange realizes that they might be held in contempt by doing so,” said Cohen.

But even if technical and legal hurdles are eventually cleared, some believe hedge funds and special situation investors, who by now hold a significant portion of Argentina’s restructured bonds, lack the financial incentive to participate.

“I don’t get it. If US investors wanted to swap into local law they could do it today,” said a second portfolio manager scheduled to meet with Lopez this week. “There are billions of local-law bonds outstanding.”

But in spite of the slim chances of success, many investors fear that the exchange is the only option Argentina currently has on the table.

“I don’t think they have the know-how and the attention span to look beyond one option at the time. Right now, they are exploring this option,” said the first fund manager.

Plans initiated by a group of exchange bondholders to waive the so-called RUFO clause, which until 2015 prevents Argentina from offering holdouts better terms than those of its 2005 and 2010 restructurings, has so far received no traction from the government.

“Their concerns go beyond RUFO,” said the first investor. “They feel that the judicial chips are stacked against them. But the feedback that they will go back to Buenos Aires with is that there is very little appetite for a local law swap.”

Reporting by Davide Scigliuzzo; Editing by Paul Kilby and Marc Carnegie

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