Informe Del Credit Suisse Sobre Oferta Argentina de Deuda

SALES AND MARKET COMMENTARY – THIS IS NOT INVESTMENT RESEARCH AND IS PRODUCED BY SALES AND
TRADING PERSONNEL AND INTENDED FOR INSTITUTIONAL INVESTORS ONLY
19 April 2020
International Trading Solutions
Latin America
Emerging Markets Trading Strategy
EM Strategy
Argentina’s tough exchange offer
Offer to bondholders unveiled TRADING STRATEGISTS
The Argentine government issued a press release with the details of its debt Daniel Chodos
+54 11 4131 2707
exchange offer for international-law sovereign bonds. The offer looks daniel.chodos@credit-suisse.com
aggressive with a grace period in interest payments, an extension of maturities
for some bonds, and extremely low coupons. The present value of the offered
new payment streams is low, in many cases below where outstanding bonds
are trading today. We think most holders of Argentina sovereign bonds will
reject this offer. However, we think it should be seen as an initial offer that
may be amended to make it more appetizing from the perspective of
bondholders, and we expect negotiations to continue. We think bonds will
continue to trade with high volatility as the government and investors negotiate.
The offer on the table
The Argentine government presented on Friday night (17 April) its offer of an
exchange of foreign-law sovereign bonds into new payment streams.
The bonds eligible to participate in the exchange include the Exchange bonds
(USD and EUR denominated Discounts and Par bonds) and the Global bonds
issued after 2016 (denominated in USD, EUR and CHF). Only the JPY-
denominated Discount and Par bonds seem to be excluded from the offer (the
amount outstanding of these bonds is very small).
Each holder of one old bond with a face value of X is proposed to exchange
that bond into a new bond with the same or a lower face value. The offer
includes 10 new bonds, five denominated in USD and the other five
denominated in EUR (Figure 1 and Figure 2).
The new bonds share some characteristics such as grace period for interest
payments of 3 years, step-up coupons and amortization of principal. Some
bonds include a haircut in principal. The new bonds will be issued under the
2016 Indenture.
Figure 1: USD new bonds Figure 2: EUR New bonds

2030 2036 2039 2043 2047 2030 2036 2039 2043 2047
Maturity 15-Nov-30 15-Nov-36 15-Nov-39 15-Nov-43 15-Nov-47 Maturity 15-Nov-30 15-Nov-36 15-Nov-39 15-Nov-43 15-Nov-47
Haircut 12% 5% 0% 0% 5% Haircut 18% 5% 0% 0% 5%
Int grace 3 year 3 year 3 year 3 year 3 year Int grace 3 year 3 year 3 year 3 year 3 year
Coupon Step-up Step-up Step-up Step-up Step-up Coupon Step-up Step-up Step-up Step-up Step-up
0.5%-1.75% 0.5%-3.875% 0.6%-4.5% 0.6%-4.875% 0.5%-4.75% 0.5%-0.75% 0.5%-2.5% 0.6%-3.25% 0.6%-3.875% 0.5%-3.5%
Avg Cpn 0.64% 2.44% 3.01% 3.43% 3.41% Avg Cpn 0.44% 1.50% 1.99% 2.45% 2.42%
Principal 5 annual 6 annual 11 annual 14 annual 20 annual Principal 5 annual 6 annual 11 annual 14 annual 20 annual
payments payments payments payments payments payments payments payments payments payments
(2026-2030) (2031-2036) (2029-2039) (2030-2043) (2028-2047) (2026-2030) (2031-2036) (2029-2039) (2030-2043) (2028-2047)
Avg life 8.5 14.0 14.5 17.0 18.0 Avg life 8.5 14.0 14.5 17.0 18.0
Source: Ministry of Economy, Credit Suisse Source: Ministry of Economy, Credit Suisse
PLEASE REFER TO THE IMPORTANT INFORMATION AND DISCLOSURES SECTION FOR IMPORTANT DISCLOSURES
AND CONTACT YOUR CREDIT SUISSE REPRESENTATIVE FOR MORE INFORMATION.
The offer divides the old bonds into buckets. Each holder of a bond that fits
into any particular bucket will be allowed to choose one new bond from a menu
that consist of different (new) bonds with some restrictions. The 2030 and
2036 new bonds will be capped in the amount to be issued.1 And the holders
of 2021-2023 old bonds will have priority to choose these new front end
bonds.
The five buckets of currently outstanding USD bonds are these:
 Front end Global bonds: Global 2021, 2022 and 2023
 Belly Global bonds: Global 2026, 2027, 2028, 2028 and 2036
 Long end Global bonds: Global 2046, 2048 and 2117
 USD Discount bonds: three series issued in 2005 and 2010
 USD Par bonds: three series issued in 2005 and 2010
There are six buckets for EUR and CHF bonds:
 CHF bond (2020)
 Front end Global bonds: Global 2022 and 2023
 Belly Global bonds: Global 2027 and 2028
 Long end Global bonds: Global 2047
 EUR Discount bonds: three series issued in 2005 and 2010
 EUR Par bonds: three series issued in 2005 and 2010
The menu facing holders of currently outstanding bonds in one bucket is not
necessarily the same as the menu facing holders of currently outstanding
bonds in another bucket.
Figure 3 and Figure 4 below present the different buckets of old bonds and
corresponding menu of new bonds that bondholders will be able to choose
from. For example, Figure 3 shows that a holder of a currently outstanding
2021 bond will be able in the exchange to choose to between three new
bonds with maturities of 2030, 2036 and 2047. Each of these possible
choices is associated with a haircut of either 12% or 5%.
Figure 3: Menu of new USD bonds offered to different groups of old USD bonds
Old bonds New bonds Haircut Int grace Coupon Avg Cpn Principal Avg life
2030 12% 3 year Step-up 0.5% to 1.75% 0.64% 5 annual payments (2026-2030) 8.5
2021, 2022, 2023 2036 5% 3 year Step-up 0.5% to 3.875% 2.44% 6 annual payments (2031-2036) 14.0
2026, 2027, 2028e,
2028j, 2036
2046, 2048, 2117
Discount USD* 2043 0% 3 year Step-up 0.6% to 4.875% 3.43% 14 annual payments (2030-2043) 17.0
Par USD*
(*) The exchange ratios for Discount and Par bonds account for par amount of these capitalized bonds
Source: Ministry of Economy, Credit Suisse
1 The issuance of the USD 2030 bond is capped at $11.4bn, the EUR 2030 at €3.2bn, the USD 2036
at $20.7bn and the EUR 2036 at €2.7bn. Other new bonds will not be capped according to the offer.
Figure 4: Menu of new EUR bonds offered to different groups of old EUR and CHF bonds
Old bonds New bonds Haircut Int grace Coupon Avg Cpn Principal Avg life
2020 (CHF)* 2036 10% 3 year Step-up 0.5% to 2.5% 1.50% 6 annual payments (2031-2036) 14.0
2022, 2023 2036 5% 3 year Step-up 0.5% to 2.5% 1.50% 6 annual payments (2031-2036) 14.0
2027, 2028 2036 5% 3 year Step-up 0.5% to 2.5% 1.50% 6 annual payments (2031-2036) 14.0
2047
Discount EUR** 2043 0% 3 year Step-up 0.6% to 3.875% 2.45% 14 annual payments (2030-2043) 17.0
Par EUR**
(*) CHF haircut includes exchange ratio of 77.96159 (2030), 90.32135 (2036 & 2047)
(**) The exchange ratios for Discount and Par bonds account for par amount of these capitalized bonds
Source: Ministry of Economy, Credit Suisse
We think most investors will consider this offer unattractive. The offer looks to
us aggressive, though it is in line with what Economy Minister Guzman hinted
in his presentation last Thursday.
Present value of the new payment streams
In our view, the offer is aggressive for three reasons: (1) no interest or principal
payments for three years; (2) a substantial extension of maturities for some
bonds (the average life of the new bonds range from 8.5 to 18 years); and (3)
extremely low coupons (average coupons for new USD bonds range between
0.64% for the 2030 bond and 3.43% for the 2047 bond – for the new EUR
bonds, the proposed coupons are even lower). These proposed coupons are
significantly lower than the coupons on currently existing bonds. The average
coupon on eligible bonds to be exchanged is approximately 5.9% (including
Exchange and Global bonds).
The present value (incorporating the haircuts proposed) of the payment stream
that the new bonds generate after taking into account the haircuts proposed
are low. For the new USD bonds, the PV is $34 (per $100 in pre-exchange
nominal claim) if an exit yield of 12% is used in the calculation, and $28 if an
exit yield of 14% is used. For EUR bonds, the present value is $28 with a
12% exit yield and $23 with a 14% exit yield.
The choice of exit yield
There is no firm historically-based anchor for the exit yield. The lower the exit
yield, the higher the PV. But we think it makes sense at present to assume a
high exit yield (of the 14% variety), given the still-significant risks to
Argentina’s economic outlook, the gradual (rather than quick) fiscal policy
tightening pursued by the government and Argentina’s still-high needs for IFI
funding and local debt issuance despite the fact that the debt exchange would
(if it were to materialize) reduce significantly the government’s coupon and
principal payments on foreign-law private-sector-held debt in the coming
couple of years.
Due to the Covid-19 crisis, yields for low-rated credits are currently high by
historical standards across the EM world. Until spreads contract substantially
further across the world’s credit markets low exit yields for Argentina will
remain unlikely. Average yields for the external dollar-denominated debt of low-
rated (but still not distressed) sovereign EM credits are currently sitting at high
levels – almost 9% for Ukraine, 9% for Pakistan, and 11% for El Salvador.
Against that background we think that exit yields below 10% for Argentina
would not be fundamentally justified. We get the sense that most investors that
are involved in Argentina currently work with assumed exit yields of around
13%-15% (some actually use an inverted exit yield curve with shorter bonds
discounted at the higher exit yield and longer bonds at the lowest yields).
As we noted above, we think the government’s offer will not get sufficient
investor support to allow an exchange to be completed, but we think
negotiations will continue.
We suspect that the government will eventually amend the offer to make it
more palatable for bond-holders. However this depends ultimately on a political
decision and lack of clarity on this point adds uncertainty to an already
uncertain situation.
Collective action clauses
A final consideration concerns the CACs.2 It seems from the possible grouping
of the currently outstanding bonds in the offer that the government’s strategy
is to allow the pooling of bonds in order to use “aggregate CACs” (single-limb
or double-limb).3
However, it seems from the different pooling of bonds that, in order to use the
single-limb aggregate CAC, the uniformly applicable requirement (all
bondholders need to be offered the same menu of bonds) will not be met for
all buckets.
The post-2016 Global bonds allow for two types of aggregate CAC methods:
single-limb and double-limb (also known as two-limb). The single-limb
aggregate CAC allows two or more bonds with a single vote (in favor of the
exchange) from investors representing 75% of the face-value of the pooled
bonds. In this case each pool has to comply with the “uniformly applicable”
requirement (all bondholders need to be offered the same menu of bonds).
The requirement, in our view, will be applicable for the front-end and belly
buckets, but not for long-end bonds. This could make it difficult to reach the
75% aggregate participation. In addition, it is unclear to us if the uniformly
applicable requirement is compatible with the fact that there will be a cap on
the amount issued in front-end new bonds and with the fact that the allocation
is subject to priority levels.
Nevertheless, Global bonds could also use double-limb where two or more
series can be amended with support from bondholders representing two thirds
of the face value for all the bonds and 50% of the face value for each series
polled. The uniformly applicable requirement does not bind double-limb CACs.
Global bonds also allow for series-by-series CACs.
The old Exchange bonds have different CACs than the post-2016 Global
bonds (Exchange bonds were issued under a different Indenture). Discount
and Par bonds only have series-by-series and double-limb CAC, and with
higher thresholds than the Global bonds.
The use of the new generation CACs (single-limb) and pooling is relatively
new, so we do not rule out additional uncertainty around the use and
implementation of the CACs.
2 Collection Action Clauses (CACs) allow a majority of bondholders to modify some terms of bonds
making it binding to all holders.
3 The CACs of the Global bonds issued after 2016 allow for “pooling” under the new ICMA CAC model.
19 April 2020
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SALES AND MARKET COMMENTARY – THIS IS NOT INVESTMENT RESEARCH AND IS PRODUCED BY SALES AND

TRADING PERSONNEL AND INTENDED FOR INSTITUTIONAL INVESTORS ONLY

Emerging Markets Trading Strategy

Figure 1: USD new bonds Figure 2: EUR New bonds

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Important Information and Disclosures

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