Argentina’s Debt Exchange Offer:
Operative complexities
Norberto López Isnardi
Director of the National Bureau of Public Credit
October 27/28, 2005
Goals
 Achieve a sustainable debt path consistent to
Argentina's stability and growth.
 Reduce domestic vulnerabilities to cope with external
shocks.
 Assure equality among creditors and the better
treatment according to the restrictions imposed by the
economic crisis.
2
Operative complexities
The Eligible Debt includes all the securities issued before
December 31, 2001.
US$ 81.8 billion
152 eligible securities
7 currencies
8 governing laws
10 Clearing Systems
3
Operative complexities (cont.)
Huge diversity of investors:
•Domestic
Retail
Institutional
•International
Retail (EU and Japan)
Institutional (USA, EU and
Japan)
4
The process was continually monitored by :
• Investors
• Market participants
• G-7
• International Organizations
• Domestic community
5
Basic guidelines of the proposal
Equal treatment among creditors.
Investors could choose new securities according
their preferences.
Preferential allocation of certain instruments.
The options menu should be designed to achieve a
reduction in nominal eligible debt amount.
6
Basic guidelines of the proposal (cont.)
•Under theses guidelines, the Government and the Dealer
Manager Banks would define:
– Terms and conditions of the new instruments.
– The incentives to participate in the exchange:
– cash payment at settlement
– benefits from better than expected growth
– preferential allocation of certain instruments
– most favored lender clause
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Participants
• Ministry of Economy and Production (Secret. of Finance,
Secret. of Technical Coordination, Undersecretary of
Financing, Secret. of Economy Policy, Secret. of Legal and
Administrative Issues and National Bureau of Public
Credit).
•Financial Representative Offices abroad.
• National Audit Offices (Auditoría General de la Nación and
SIGEN).
• Presidency of the Nation, PTN (Decrees Nº319/04,
1735/04 and 1911/04).
• External lawyers of the Republic..
• Dealer Manager Banks:
– Domestic: Nación, Galicia and Francés
– International: UBS, Merryl Lynch y Barclays
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Participants (cont.)
• Exchange Agent
• Information Agent
• Clearing Systems
– Local: 2 (Caja de Valores and Cryl)
– Abroad: 8 (EU and USA)
• Congress:
– it was continually informed
* The Congress delegated to Executive Branch, through the Ministry
of Economy and Production, the faculty to restructure the public debt.
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Implementation
• Appointment of Dealer Manager Banks through
Presidential Decree. Involvement of several areas of the
Ministry of Economy. Participation of National Audit
Offices (SIGEN) was requested.
• Design of the financial proposal.
• Prepare specific documentation for each region with
Banks.
• Coordination of marketing task with Banks.
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Appointment of Banks and Agents
• Exchange Agent: to receive and process submitted offers.
• Information Agent: to identify and to provide information to
bondholders. Verification process in Italy
• Design of allocation mechanism for Par and Quasi-Par bonds.
– Banks, Agents and Clearing Systems worked in the design of the the
mechanics of the transaction given its complexity.
– Definiton of main Clearing Systems responsible of receiving and
submitting offers to the Exchange Agent.
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Execution of the transaction
• Bondholders receive information through their banks,
prospect, web site and call center.
• Bondholders choose their options and submit their orders
through banks to the custody.
• The exchange was opened during 6 weeks. Settlement took
place on June 2nd, 2005 (Scheduled date was April, 1st.)
During both periods there were risks:
•suspension of the process
•attachments
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Execution of the transaction (cont.)
• Custodies centralize and process submitted offers before
transmitting them to one of the main Clearing Systems
• Clearing Systems submit information to the Exchange
Agent on a daily basis.
• Exchange agent processes information on a daily basis and
report to the Republic.
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Settlement
• Total number of offers: 64.390. Allocation and pro rata of
bonds in the first day: Quasipar: 80,44%. Par Bonds: Baskets
A, B, C were covered. Basket D: 24,55 %. Excess was
allocated to Discount bonds.
• Information of final allocation to the Clearing Systems.
• Clearing Systems exchanged eligible bonds in order to match
each one with the correspondent Global Certificate before
proceding to mark down the old bonds.
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Settlement (cont.)
• Mark down of the submitted eligible bonds.
• Issuance of new bonds:
- New bonds were delivered
- Payment of accrued but unpaid coupons
- Release of Brady Bond collateral
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Global Results
(In millions of US$)
Eligible Amount
81.836
Exchanged Amount
62.318
In %
62.318
76, 15%
35.261
Par Bonds
15.000
Discount Bonds
11.932
Quasi-par Bonds
8.329
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Par and Quasi-par Bonds Allocation
(In millions of US$)
Par Bond
15.000
Par Bond Tenders
20.337
Spill over Discount Bond:
5.337
 1.799 in new Discount Bonds
Quasi-Par Bond
8.329
Quasi-Par Bond Tenders
10.486
Spill over Discount Bond:
2.156
 1.039 in new Discount Bonds
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Total Public Debt
200.000
In millions of USD, end of period
2004;
191.254
2003;
178.821
180.000
160.000
2001;
144.453
140.000
100.000
80.000
60.000
2005;
(1)
126.466
Restructuring
Collapse of
convertibility
120.000
40.000
20.000
Convertibility
70;
2.144
5
2
00
3
00
2
00
1
9
2
9
7
9
5
9
3
9
1
9
9
8
7
8
5
8
3
8
1
8
9
7
7
7
5
7
3
7
7
1
0
(1) Preliminary figures. Maximum value of the so called contingent liabilities according to the terms of the Prospectus
Supplement: US$ 6,6 bn
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Public Debt Pre & Post Restructuring
2001
Interest service / Exports
2005
38%
9%
Public Debt Stock / Exports
544%
323%
Foreign ccy debt stock / Exports
527%
204%
Interest service / Reserves
70%
14%
Interest service / Tax revenues
22%
9%
8%
2%
113%
70%
88%
43%
Interest service / GDP
Debt / GDP
Principal & interest / Total Debt *
* For the next 5 years. Excluding BOGAR's, BODEN's quasi-currencies and Central Bank assistance.
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