The Argentine government recently announced a $29.48 billion debt swap of short term bonds for securities with longer-term maturities, deferring debt service costs by approximately $17 billion through the end of 2005. The "mega" exchange reduces financial needs at a time when it is crucial to make room to restore growth and ease fears of a default. The transaction was approved by Decree No. 648 dated May 16 2001.
Securities eligible to be exchanged total 46 bonds, including Par and Global bonds, FRBs and all Peso bonds. In exchange for securities tendered, Argentina will issue a new promissory note (pagaré) due in 2006 and four new global bonds: a peso-denominated global bond due in 2008, a US dollar global bond due in 2008, a US dollar global bond due in 2018 and a US dollar global bond due in 2031. Letes (treasury bills) and Euro and Yen bonds were not included in this transaction. Except the promissory note (pagare) all new issues have a fixed rate. The average yield on the new bonds issued is 15%.
The government indicated that the total issue amount of new bonds is as follows:
- 2008 peso bond: $931 million
- 2008 dollar global bond: $11.456 billion
- 2018 dollar global bond: $7.446 billion
- 2031 dollar global bond: $8.521 billion
- 2006 dollar pagare: $2.030 billion
The exchange increases the Argentine public debt in $2.255 billion.
The joint lead managers of the transaction were JP Morgan Securities, Credit Suisse First Boston, Salomon Smith Barney, HSBC Bank Argentina, Banco Galicia y Buenos Aires, Banco Santander Central Hispano and BBVA Banco Francés. The government approved the payment of a 0.55% commission on the total amount exchanged.
In the first test of the markets taken by the Ministry of Economy after the debt swap, the government paid rates lower than 8% in an auction of Letes (Treasury Notes) for an amount of $700 million. It paid 7.89% for 91-day Letes and 9.90% for 182-day Letes. On May 22, the Ministry of Economy had paid 12.09% for 91-day Letes. The reduction with the previous auction is approximately 420 basis points.
The Argentine government is now evaluating a $15 billion swap of bonds denominated in euros and other currencies with maturities up to the end of 2005.