Exchange of foreign debt: conditions for the eligible securities not exchanged

While the Argentine public debt exchange offer established by Decree No 1735/2004 was still open, on February 9, 2005, Congress passed Law No 26,017 (the “Law”), regulating certain additional matters related to the exit from default.

The bill was sent by the Executive Branch to Congress on February 2, 2005, with the intention of convincing holders of eligible securities to accept the offer and establishing that the offer is definitive and will not be improved, because it reflects the real payment capability of the country.

The Law forbids the Argentine Executive Branch to reopen the exchange process, which implies that the current offer cannot be improved nor modified in any way (except for the extension of the term of the current offer, already foreseen in the related documentation).The Law also forbids the Argentine Government to execute any in court, out of court or private settlement related to the securities subject to the exchange.Notwithstanding the existence of the most favored creditor clause, there is some controversy as to the effects of such clause and the prohibition to make new exchange offers.On the other hand, the Law limits the actions of the Argentine Executive Branch, but nothing prevents the modification of the Law in accordance with the mechanisms established by the Argentine Constitution.

Additionally, the Law provides for the delisting of the eligible securities not exchanged from all Argentine and international stock markets.To achieve this, the Argentine Executive Branch must perform every act and formality necessary.Even when the terms and conditions of the offer already established that the eligible securities not exchanged would be delisted, this issue is extremely complex since, as provided in the Law, it depends not only from the terms and conditions of the securities to be delisted, but also from the regulations applicable in each of the various stock markets where the securities are listed and the applicable law in each of the jurisdictions both to the investors and the offeror.

Finally, the Law imposes the replacement of defaulted eligible securities deposited by any cause or title in any judicial proceedings into “Republic of Argentina Par Bonds Step Up 2038” to be issued in the exchange procedure, if the holders have not expressly accepted or rejected the exchange offer within the judicial proceeding during the offer period.Due to some controversy, the Argentine Government has apparently clarified before the U.S. Securities and Exchange Commission (“SEC”) that this provision would only apply to securities deposited in any Argentine court judicial proceeding.However, this mandatory and automatic exchange could be questionable.