NEW YORK, June 20 (IFR) - Distressed-debt and special-situation investors have been snapping up defaulted Argentine bonds, looking to cash in from any eventual settlement between the sovereign and holdout creditors.
They got a boost Friday after President Cristina Fernandez de Kirchner said she would negotiate with the creditors, sending the restructured discounts some seven points higher to 83.00.
While restructured bond prices have seen dramatic price swings this week as investors reacted to the latest twists and turns in the long-running dispute, untendered debt has held steady - and in some cases has risen 20 points.
The Argentine bonds, which weren’t exchanged for new notes during the 2005 and 2010 restructurings, are often hard to source. Many were issued in the UK, Germany and Italy before the country’s depression in the early 2000s.
“We have been scouring for scraps of untendered Argentine sovereign notes and the price action has been quite unambiguous,” said Michael Roche, emerging-markets strategist at boutique investment firm The Seaport Group.
“Some are held by unorganized investors. Some have been forgotten about.”
The highest price, for a 10.5% November 2002 bond originally issued in Deutschmarks and now denominated in euros, was logged in today at 78, said Roche.
Untendered bonds issued under New York law are quoted at the highest prices, followed by those issued under UK, German and Italian law.
Notes issued under New York law stand to benefit directly from a settlement of the dispute between Argentina and the holdouts, while the fate of notes issued in other jurisdictions is unclear.
“Some of the bonds might have fallen behind the radiator, but we understand that virtually all of the New York-law bonds are subject to lawsuits pending before Griesa,” said Henry Weisburg, a partner at law firm Sherman & Sterling.
Distressed-debt buyers, however, are betting that if Argentina is forced into a new restructuring, it will have to negotiate with holdouts across all jurisdictions.
“We think the price differential due to the securities’ governing law will close, as Argentina will likely want to put all the unrestructured debt behind them,” said Roche.
Rewards could be huge. Assuming that a deal with holdouts included 25% of cash and 75% of new local-law bonds issued at a price of around 85 cents to the dollar, the untendered notes could be valued at as much as 88 cents, said Roche.
That still leaves considerable upside on untendered debt, even after the recent rally. (Reporting by Davide Scigliuzzo; Editing by Paul Kilby and Marc Carnegie)