Distinctions between Exchange Bonds and “Macri” Bonds

Exchange Bonds (“Pars” and “Discounts”) were issued to bondholders who agreed to restructure their bonds following Argentina’s 2001 default in exchanges that took place in 2005 and 2010.  While certain bondholders refused to exchange their bonds and triggered litigation lasting more than a decade, exchange bondholders agreed to compromise their claims.

These compromises were deeply painful for bondholders, and Exchange Bonds were meant to be part of a “once and for all” exchange that would put Argentina back on permanently sound footing.  In reality, though, as soon as Argentina regained access to markets, it resumed borrowing at high levels, first from international markets in the form of “Macri” bonds and then from the IMF.  This new borrowing added $85 billion of new external debt on top of the modest $24 billion of Exchange Bonds outstanding.  Exchange Bondholders, having helped Argentina return to a strong financial position, have suffered from Argentina's subsequent releveraging.

While the Exchange Bondholder Group is willing to constructively engage in negotiations in the current debt restructuring exercise, the past sacrifices of Exchange Bondholders, who did nothing to contribute to the current problem, must be recognized and acknowledged in any compromise.  Indeed, the 2005 Indenture, under which the Exchange Bonds were issued, offers a far higher level of protection for bondholders than the 2016 “Macri” bond indenture—a further indicator that Exchange Bonds were designed so as never to be restructured again in a materially prejudicial fashion.

In the 2005 and 2010 exchanges, bondholders selected between Par and Discount options.  These options were designed at the time to be substantially equivalent in net present value terms.  In both cases, bondholders accepted deep reductions in the value of their holdings approximating 70%.

For Pars, holders retained their par value claim, but accepted an extension of maturity of more than 30 years and interest rates well below prevailing risk-free rates on US treasuries. 

In the case of Discounts, bondholders in the 2005 and 2010 exchanges accepted an upfront 67% reduction in the par value of their claims in return for receiving new bonds with a coupon rate of 8.28% (7.82% in case of Euros) and a 28-year extension of maturity.  Implicit in this bargain was that holders of Discounts would “earn back” this principal haircut by receiving a higher coupon rate than Pars over time. 

By seeking a new restructuring of Discounts, Argentina is breaking its end of the initial bargain by which Discount Bondholders agreed to the deep principal haircut.  Discount Bondholders have organized for the purpose of defending themselves against this form of “double jeopardy” and ensuring an equitable approach to restructuring which respects the prior contributions which they, uniquely among Argentina’s bondholders, provided.

Meanwhile, Pars already resemble bonds that are sustainable under any circumstances for Argentina.  They carry well below market coupons (the lowest by far of any bonds issued by Argentina), have a long remaining maturity and a smooth amortization profile.  Par holders, likewise, have organized to ensure equitable treatment for their claims and past sacrifices.

Subject to equitable treatment and respect for their unique history as well as the terms, provisions and protections in the 2005 Indenture, the Exchange Bondholder Group has affirmed its willingness to help address the present debt servicing challenges Argentina faces.