Hidden among the long-running Argentina debt saga is a small snippet of good news for a sub-set of investors who have suffered a torrid time throughout the last two decades of Argentine debt negotiations.
The story starts all the way back in 2001.
Italian banks then held roughly €15 billion in Argentine debt that was clearly heading for default.
The euro was being introduced then, and suddenly there were a lot of Italian retail investors looking aghast at the new low eurozone interest rates.
At 11%, Argentine debt was yielding roughly the same as the old Italian bonds – and so the risk passed from the banks to these retail investors.
Then default happened.
The same Italian banks that had sold them the debt led the negotiations for these investors in the first round but, given clear conflicts of interest, no agreement came. Nor were these retail investors included in the 2010 agreement.
As the Argentine government passed through rounds of debt negotiations, these bonds continued to fall through the cracks.
The logistical challenges of tracing and contacting individual holders, compounded by the relatively small size of this tranche (less than 1% of the recent $65 billion restructuring) created practical and costly challenges.
Also, these investors held a precious commodity on top of these bonds: goodwill. A source close to the Argentine negotiating team says they recognised that these bondholders had been (in the main) unaware of the risk they were buying.
And, given that these bonds weren’t written under New York law, there was no chance of “vulture funds having bought up these notes – these weren’t Paul Singers,” says a source.
In the end, Argentina decided to pay these bonds off at par – in terms of accumulated interest and principal repayments.
The announcement was made September 28, and payment made on September 30.
“It’s an interesting twist that, by virtue of having had the roughest deal of all bondholders to date, they ended up getting the better deal,” he observes. “It’s nice to see a tiny bit of justice in the financial world.”
