Argentine Bonds Research Articles

Restructuring Argentina’s Sovereign Debts – Navigating the Legal Labyrinth

On Feb. 19, 2020, the IMF declared that Argentina’s debts were no longer sustainable and called upon bondholders to help resolve the crisis. A schedule for the restructuring of Argentina’s external debt has been announced by the Argentina Ministry of Finance on Jan. 29, 2020. According to the Ministry, Argentina plans to launch a debt restructuring offer in the second week of March and execute the offer by the end of March. This short essay provides an overview of the intricate challenges that Argentina would be facing in a potential restructuring of its sovereign debt obligations, with a focus on the legal aspects. After mapping the respective debt instruments, which include domestic debt, international sovereign bonds, as well as loans from international financial institutions, I turn to the key legal obstacles when it comes to the (unilateral) restructuring. The paper posits that the most significant legal risks are likely to occur with respect to international bonds and disruptive legal actions taken by their holders. Uncooperative creditors may engage in holdout tactics with the goal of obtaining a better settlement than their peers by refusing to settle and ultimately launching litigation proceedings in foreign courts. The latest type of Argentine bonds (Macri bonds) include modern, fully-aggregated, single-limb Collective Action Clauses (CACs), which are powerful in ameliorating such holdout inefficiencies. However, several older bonds (Kirchner bonds) feature an outdated model of CACs, and generally afford stronger enforcement rights to bondholders. Unsurprisingly, creditor holding Kirchner bonds have already formed committees to leverage their negotiation position. Another related difficulty that this paper reviews arises from the requirement in Argentina's newer (Macri) bonds that a restructuring offer must be uniformly applicable for all affected series of bonds. Given the two different sets of bond contracts involved, this requirement may lead to complex transactional and design questions. Finally, with respect to the interpretation of the pari passu clause included in Argentina's bond prospectuses, the essay argues that a recent decision by the Southern District Court of New York significantly reduced the risks of specialized holdouts attacking a majority-approved debt workout. To be sure, modern sovereign bond restructurings rest on the basic premise of bondholder democracy. In other words, as long as a sufficient majority of creditors accepts a restructuring offer, most legal obstacles can be overcome. However, the entrance of specialized distressed-debt managers the market suggests that some investors will gamble for a better deal, or try to leverage their contractual rights against the country in a classic holdout manner. While Argentina certainly finds itself in a legally superior position compared to its last debt crisis, the country will soon have to sail into choppy legal seas where all sorts of hazards lurk - some of which the country is all too familiar with.

Spillovers entre el S&Poor500 y los principales EMBIG latinoamericanos

En este trabajo se realiza un análisis de los efectos de derrame (spillover ) entre los rendimientos accionarios de Estados Unidos y los cambios en los índices EMBI Global de Argentina, Brasil, Colombia, México y Perú. Se estima un índice del spillover total que muestra alzas importantes a principios de siglo y durante la crisis financiera mundial. Al descomponer dicho índice en sus componentes direccionales se observa que las principales fuentes de spillover entre los mercados analizados son el mercado accionario de Estados Unidos y el índice de los bonos brasileños. También es de destacarse que los principales receptores de efectos derrame son los índices de los bonos de Perú y México, en tanto que el índice de los bonos argentinos son los menos afectados por los choques externos.

Deuda soberana e instituciones internacionales de arbitraje: Las demandas contra Argentina (2006-2016)

Con el afán de reinsertar a la República Argentina en los circuitos financieros globales, la administración de Mauricio Macri (2015, en adelante) procuró resolver las controversias con los tenedores de títulos públicos argentinos en situación irregular. En marco de tal estrategia -preanunciada en la campaña electoral e implementada raudamente en los primeros días de gestión-, se inscribieron los acuerdos con los tenedores de títulos públicos de nacionalidad italiana que habían incoado demandas contra el país en el marco del Centro Internacional de Arreglo de Disputas Relativas a Inversiones (CIADI). Estos procesos, iniciados tras el cierre del primer tramo del proceso de reestructuración de 2005, fueron objeto de múltiples cuestionamientos político-académicos, al implicar desafíos no sólo para el país, sino para el ordenamiento financiero internacional entero al alterar los circuitos institucionales para la resolución de disputas en materia de deudas soberanas. El propósito del presente artículo es analizar el curso de las demandas incoadas por los tenedores de títulos públicos en el CIADI, desde su inicio hasta su terminación por arreglo.

Collective Actions in ICSID Arbitration: The Argentine Bonds Case

The article deals with the subject matter of collective actions in ICSID arbitration. This topic has emerged as one of the ‘hottest’ issues in international investment law after the release of the Decision on Jurisdiction and Admissibility in the case Abaclat and others vs. Argentina. In this decision the majority of the ICSID Arbitral Tribunal considers as admissible in ICSID arbitration the collective action of about 60,000 Italian bondholders (initially about 180,000) represented by the Association for the Protection of Investors in Argentine Securities (‘Associazione per la Tutela degli Investitori in Titoli Argentini’). The decision issued by the Abaclat Tribunal, leaving the Argentine case aside, could open the way to mass claims in international arbitrations based on international agreements on the protection of foreign investments (the so called BITs), brought by holdout creditors in case of sovereign insolvency. The article critically analyses the majority’s ruling by commenting on some selected issues dealt with by the Tribunal. First of all, the article deals with the qualification by the Tribunal of the Italian investors’ mass claims as treaty claims (rather than as contractual claims). Secondly, the qualification of the Claimants’ security entitlements in the Argentine bonds as investments made in Argentine territory pursuant to Article 1(1) of the Argentina-Italy BIT is analysed. Finally, the method and the reasoning followed by the Tribunal in order to admit bondholders’ mass claims under the BIT in ICSID arbitration are critically discussed. In this respect, the conclusion is drawn that the Tribunal has conflated questions regarding jurisdictional subjective requirements under the ICSID Convention and Argentina-Italy BIT with questions of claims’ admissibility as well as issues related to parties’ consent to ICSID arbitration under the Argentina-Italy BIT with mere procedural issues.

Argentina Debt -- The Settlement Clause

This is a paper on the Settlement Clause of the Argentine Bonds that apply to the renegotiation of the Argentina debt in default and particularly about its effects on the debt that was subject to the exchanges carried on in 2005 and 2010. This paper argues that under the Best Creditor clause Argentina would have the possibility of reaching out a settlement with the holdout creditors without affecting the rights of the so called exchange bondholders.

Political institutions and sovereign borrowing: evidence from nineteenth-century Argentina

I study the relationship between political institutions and sovereign borrowing when constitutional constraints are systematically chosen to obtain better credit conditions. I argue that the impact of institutional constraints on country risk premia depends on the gov- ernment's concern with the country's creditworthiness and its "willingness to repay"; two variables that are hardly observable. To properly evaluate the relationship between political institutions and sovereign borrowing, I focus on the link between institutional constraints and the risk premia of Argentine bonds between 1822 and 1913. Specifically, I analyze whether a "structural break" in the government's cost of borrowing time-series exists. I use the Perron-Volesang test for structural change with unknown break dates. The statistical analysis indicates that the adoption of institutional constraints led to significant improve- ments in borrowing terms: the series has a single structural change; and the distinctive break point is associated with the country's adoption of constitutional checks and balances. Time- series regressions and instrumental variables (IV) estimation reinforce these findings.

COLLECTIVE ACTIONS IN ICSID ARBITRATION: THE ARGENTINE BONDS CASE

This comment deals with collective actions in ICSID arbitration. This topic has emerged as one of the hottest issues in international investment law after the recent Decision on Jurisdiction and Admissibility in the case Abaclat and others v. Argentina. In this decision the majority of the ICSID Arbitral Tribunal considers as admissible the collective action of about 60,000 Italian bondholders represented by the Association for the Protection of Investors in Argentine Securities. The decision issued by the Abaclat Tribunal could open the way to mass claims in international arbitrations based on international agreements on the protection of foreign investments (so-called BITs), brought by holdout creditors in case of sovereign insolvency. A critical review of some selected issues dealt with by the Tribunal will be presented. First of all, this comment addresses the qualification of the Italian investors’ mass claims as treaty claims (rather than as contractual claims). Secondly, the qualification of the claimants’ security entitlements in the Argentine bonds as investments made in Argentine territory pursuant to the Argentina-Italy BIT is analysed. Finally, the method and reasoning followed by the Tribunal in order to admit bondholders’ mass claims under BITs in ICSID arbitration are critically discussed. In this respect, the conclusion is drawn that the Tribunal has conflated questions regarding subjective jurisdictional requirements under the ICSID Convention and Argentina-Italy BIT with questions of claims’ admissibility, as well as issues related to parties’ consent to ICSID arbitration with mere procedural issues.

The Failure of External Control on Public Utilities

Although on average the cost of local public services is quite high, the same cannot always be said about their quality. Why is this so? This paper suggests that the answer lies in the failure of external control systems. Specifically, four types of risk have been identified: (1) standardisation that is either lacking or incongruent; (2) inappropriate relationships between controllers and the controlled; (3) cases of erosion and resistance to control; (4) incoherence between control aims and methods, and the skill of controllers. The research method was based partly on an analysis of literature and partly on empirical observation. Initially, a thorough examination of articles on the subject published in the main international journals was carried out. Then empirical research (limited to the Italian situation) was added to support the research hypotheses, and which led to the paper’s conclusions. The results may be significant from two points of view. Firstly, although in recent years financial scandals have been very much in the news (the cases of Enron, Argentine bonds, football club scandals) literature has not yet systematically dealt with control failure. Secondly, the conclusions may be of support to public administration policy-makers or to controllers who need to improve their professionalism and diligence.

Political Institutions and Sovereign Borrowing: Evidence from Nineteenth-Century Argentina

I analyze the relationship between political institutions and sovereign borrowing in a simple model where institutions are endogenous and governments vary in their credit risk and political goals. The model formalizes the main intuition in North and Weingast (1989) and also reconciles seemingly contradictory claims in the existing literature. My main result suggests that one has to consider both the direction and the magnitude of the institutional effects on a country's credit risk to establish that greater institutional constraints lead to better borrowing terms. I evaluate the model’s central implications using data on the risk premia of Argentine bonds between 1822 and 1913. My analysis reveals that one cannot reject the existence of a unit root in the series' autoregressive representation. In particular, the existence of a single and distinct break point in 1859 indicates that the adoption of constitutional constraints had a permanent effect on the country's borrowing costs.