NEW YORK, Dec 10 (IFR) - Argentina is struggling to win over US-based investors on a bond exchange designed to lower refinancing risks and possibly give it more leverage in negotiations with holdout creditors.
The sovereign, which launched a tender and exchange offer on local law bonds Wednesday, may find a healthy local bid from the state-owned pension system.
Yet several US-based holders of Argentine debt contacted by IFR said they had refused to take part in the deal, citing its poor economics and possible legal risks.
"I don't think it makes sense to engage in the swap, when you can execute at better prices in the market," said Marco Santamaria, a portfolio manager at AllianceBernstein. "Most issuers give you an incentive to participate in a swap and/or new issue... here you are paying a premium. I don't get it."
A Boston-based portfolio manager said his firm ran the risk of exposing itself to legal action from its clients if it agreed to such unfavorable terms.
"As a fiduciary, I could get sued by my investors for doing something that on the face of it is so disadvantageous," he said. "Our internal committee and the mutual fund's board are going to come to me and ask for an explanation. It is really, really difficult."
Argentina is offering holders of its 7% Boden 2015 various options. They can either cash in at 97 cents on the dollar or swap into 8.75% Bonar 2024s at 99.70 for every 100 of the 2015s exchanged, plus accrued interest.
The country is also looking to tap the Bonar 2024s for up to US$3bn at a price of 96.20. The offer expires on Friday.
Observers, however, question the economics of the trade, given that Boden 2015s were quoted on Wednesday morning at 97.60-97.85 and the Bonar 2024 at 94.34-95.25.
Effectively, an investor could sell the Boden 2015s at a higher price and buy the Bonar 2024s at a lower level.
The approximately US$3.25bn in outstanding Bonar 2024s, which were issued under Argentine law earlier this year as part of a US$5bn settlement with Spanish oil company Repsol, are not covered by a US court injunction that prevents the country from servicing its restructured bonds unless it also makes holdout creditors whole.
Failure to comply with that injunction pushed Argentina into a new default this summer on nearly US$28bn of its restructured foreign-law bonds.
The 2024 notes, however, might not be completely immune from litigation risks either, as holdout investors could argue that they should rank pari passu with Argentina's restructured bonds and ask the courts to bring them under the injunction.
"Those contemplating participation (in the swap) don't seem to realize that there is a significant risk that these bonds could be brought under the pari passu injunction," said a source close to the holdout creditors. "Holdouts could seek to secure this ruling in the future."
Others believe that convincing a judge to agree to such changes may prove more difficult.
While agreeing that holdout claims on Argentine-law bonds denominated in foreign currency might carry some weight, a lawyer familiar with the situation said widening the scope of the injunction may be a long shot.
"A lot of the local-law bonds are carved out from the definition of external indebtedness and tracing the roots of all of these seems quite complicated," he said.
Reporting by Davide Scigliuzzo; Editing by Paul Kilby and Natalie Harrison