A few months ago Argentina’s new government under President Alberto Fernández completed a bond exchange which was approved overwhelmingly by its foreign bondholders. The final restructuring deal that Argentina reached with its foreign bondholders in early August 2020 was the product of a fraught and tortuous negotiating process that lasted several months and came after Argentina had defaulted on its sovereign debt in late May 2020 for the ninth time in its history.
A four-part article published in Global Restructuring Review examined the negotiating dynamics in the restructuring negotiations between Argentina and its foreign bondholders. The article focused in particular on what I call the ‘three P’s’—namely, the pandemic, the professoriate, and the Pope—that I argue underpinned Argentina’s strategy in those negotiations.
Argentina sought to use each of the ‘three P’s’ to its advantage. First, the pandemic likely made Argentina’s foreign creditors more accommodating in their stance vis-à-vis Argentina in light of the strains the pandemic placed on Argentina’s sovereign balance sheet.
Second, Argentina benefited from the support of prominent professors from around the world who, in a few open letters, expressed their strong support for Argentina’s negotiating position. The professors weighed in on various matters such as whether Argentina’s debt sustainability would or would not be restored by debt restructuring proposals then under consideration and what type of collective action clauses (CACs) for binding dissenting creditors through a supermajority vote should be used in the new bonds issued pursuant to the restructuring.
On the specific issue of CACs, the professors supported, among other matters, Argentina’s position that CACs based on aggregated voting across multiple series of bonds should be incorporated in the new bonds as opposed to CACs that contained a requirement for series-by-series voting (a position that was favored by certain bondholders). The professors expressed the view that aggregated CACs had become the market standard as embodied in the model ‘enhanced’ CAC promulgated in 2014 by the International Capital Market Association (ICMA) and that earlier-generation CACs based on series-by-series voting essentially only strengthened the hand of potential holdout creditors. The professors argued that the use of the earlier-generation CACs that included a requirement for series-by-series voting would ‘exacerbate the collective-action problems in sovereign debt workouts…and make pragmatic and viable solutions to sovereign insolvency much more elusive.’ Third, Argentina sought to benefit from the Pope’s moral authority as reflected in a meeting the Pope held in late January 2020 with President Fernández as well as in the Pope’s participation a few days later in a Vatican conference on issues of debt and development.
In its final section, the article discussed the economic prospects for Argentina post-restructuring in view of the major economic challenges that Argentina will continue to face notwithstanding the outcome of the recently concluded sovereign debt restructuring. The article also provided an overview of certain factors that may be relevant to Argentina’s discussions with the International Monetary Fund (IMF) concerning the IMF’s outstanding loan of $44 billion to Argentina.
This post has previously been published on the Harvard Law School Bankruptcy Roundtable blog.
Steven T. Kargman is a leading expert on international restructurings, is the Founder and President of KARGMAN ASSOCIATES, New York City.