The (new) restructuring of

ARGENTINE EXTERNAL DEBT (IN FULL

COVID 19)

I. Introduction Argentina faces once again the possibility of default of its sovereign debt. It would be the third one in less than twenty years.

This time the context is far pressing. At the beginning of the current administration, the restructuring of the sovereign debt was a major issue; with the emergence of COVID 19, it quickly moved to the background. Even when the quarantine in Argentina is being extended over and over again, the need to think the day after is becoming critical. The exclusively sanitary approach to the pandemic embraced by the government will necessarily yield to a broader vision, which must include a plan to resurrect an economy in ruins. Financing to overcome the economic slump will be of the essence, bringing the debt settlement back to center stage.

It is a crucial matter for both the State and the private sector, because their access to the financial markets is at stake. A State in default is a pariah; an inconvenient status in times when international cooperation and assistance become more important than ever.

There is not much room for creativity in debt restructuring processes. Argentina is well aware: the country paid dearly for it in the past;

as the bonds tied to GDP growth (2005) recall.

The possibilities of maneuvering are limited to two main drivers: a haircut (principal or interest) or a grace period (or a combination of both). A sustainable economic plan must encompass the proposal so as to ensure that the reformed commitments have reasonable basis.

Simplicity in the formulation of the financial and legal terms of an offer is also essential for a double purpose: to encourage the acceptance of creditors and prevent potential claims (the hundreds of pending lawsuits since the latest swap in 2008 in NY, Madrid and Germany are sad examples).

II. The Proposal, roughly On April 16th, Argentina filed a proposal to swap its bonds governed by foreign law. The offer was labeled as “initial” and the deadline to accept it (May 8th) “extensible”, hinting that there would be room to improve the conditions. The “D” day for Argentina is May 22: on April 22, an interest payment of USD 500 MM was not honored;

initiating a one-month period to remedy the breach; otherwise, default will occur.

Argentina´s aim is to restructure a USD 66,238 MM debt stock. The offer was not as aggressive as expected by the market: a 5.4% principal haircut, a 62% interest reduction and a three- year grace period were proposed.

The offer includes two main bundles of bonds:

those issued in 2005, at the "completion" of the latest restructuring process, and those issued in 2016. The terms of the 2016 ones are definitely more favorable for the country, especially from the point of view of collective action and cross default clauses.

It pursues to consolidate both universes into one, with preeminence of the 2016 terms. The “Eligible Bonds” are sliced into several tranches according to the applicable indentures and then assigned different “New Bonds” alternatives available for swap.

A defined style worthy of attention and a set of “originalities” characterize the Proposal as a whole.

The style is marked by unilateralism and the lack of dialogue (an approach that in the past led to the most recent default). Originalities on the other hand, comprise complex legal and financial components drafted in an arcane fashion; negative incentives to accept and no sweeteners to encourage it (usual in any restructuring process): the bondholder who accepts, fine; the one who does not may receive bonds with longer maturities, less interest and reformulated general conditions.

III. The Proposal at length. Lights and shadows Main features of the Proposal:

ü Submitting an Offer: by submitting an offer, in addition to accepting the exchange, a holder consents amendment of the terms of the original tranche of the bonds being swapped. If the majorities necessary to restructure certain tranches are achieved, all the Eligible Bonds held by those who did not consent, will be modified and replaced by New Bonds maturing in 2039, 2043 and 2047. It is an aggravated acceptance, under a tag along modality.

ü Re-designation: under this euphemism, Argentina reserves the right to choose which series of bonds will be considered for computing the majorities to amend them all. Furthermore, the excluded tranches could be taken individually and thereafter fully amended if the majorities required are met. In a nutshell, a power to discretionally define the tranches subject to restructuring to carry the largest number of holders is instituted.

April 27th, 2020 ü Right of acceptance: Argentina can accept an offer and exchange the Eligible Bonds for New Bonds even if in a given tranche the majorities required for its amendment are not met. In that event, the Eligible Bonds of the series whose holders did not consent will not be exchanged.

ü Cross-default: there will be no cross - default between the Eligible Bonds and the New Bonds. Only between the New Bonds and those that are issued in the future.

ü RUFO: the Right Upon Future Offers clause applicable to the New Bonds (with some exceptions) states that if a new offer occurs within 5 years of the exchange, any enhanced terms ought to be extended to those who accepted the first swap.

However, it doesn´t apply if Argentina is forced to open a new swap, amend or buy the Eligible Bonds not exchanged by virtue of a court order or final arbitration award.

IV. Collective action clauses: the majority challenge; possible outcomes Collective action clauses ("CACs") have been one of the greatest developments within the sovereign debt market in recent times. Up until their existence, even if the debtor achieved high levels of acceptance, the toughest creditors could hold out of the process and s ue thereafter. With CACs in force, if the debtor gathers the minimum required percentage (66% is the average), the conditions of the restructured debt are imposed on to all creditors, limiting the ability of holdouts to hinder the process.

Achieving the required majorities under the CACs is of the essence for a successful restructuring process. We envisage the following potential outcomes:

i.

Non-application of the CACs: in the event that Argentina fails to meet the majorities required to approve any of the proposed amendments, it should decide whether or not to accept the exchange offers received.

The number of holdout creditors would be significant and two paths would stand:

default or a better offer, subject to creditors accepting a standstill that extends the term beyond May 22.

ii.

Partial application of the CACs: in the event that Argentina meets the majorities necessary to approve some of the proposed amendments (either uniformly in several tranches, or individually in some), it could exercise its power to redesign the Eligible Bonds and try to achieve the most efficient combination. A decision will have to be made whether to accept offers from holders of tranches for which the majorities necessary to apply the CACs were not obtained. The number of holdouts could vary significantly depending on the tranches that can be restructured. Either a partial default or an enhanced offer could ensue.

iii.

Full application of the CACs: the proposed modifications would be fully adopted for all tranches and no holdouts would remain.

V. To consider: litigation risk and process blocking; the "pari passu" argument It is worth noting that the majority of foreign debt is governed by US law and subject to NY jurisdiction, specifically the court of Judge Loretta Preska (after Judge Thomas Griesa).

Argentina has a long and not encouraging past associated to litigation in this court over its sovereign debt. The same court is actually dealing with the Burford claim against YPF, and cases related to the 2005 bonds tied to GDP growth. It is a key factor worth considering whilst analyzing potential actions to block the restructuring process or subsequent litigation.

a- Risk of litigation The provision conferring Argentina the power to re-designate the tranches that enter the swap incorporates a controversial and novel interpretation of the terms of the original CACs.

The majorities are no longer computed over the total amount of the debt to be restructured;

rather, Argentina has ample discretion to cherry pick the tranches that would form the basis to activate the CACs. In addition, any offer from a creditor is conditioned on accepting this modification.

The universe of potential creditors that could be adversely affected is thereby broadened because their tranches could be amended even if no consent is granted. We therefore do not rule out claims on twofold grounds: (i) a New Bond with less favorable terms would be imposed on hold out creditors vis a vis those who accepted the offer (with longer maturity dates mostly), breaching the parity principle under the terms of the original tranche, and (ii) generally, the New Bonds imposed on holdout creditors would not provide a RUFO clause.

Claims of this sort would certainly challenge Argentina's power to redesign.

b- Risk of blocking During March and April 2020, Argentina´s debt traded between 25% and 35% of its face value providing a window of opportunity for investment funds to purchase Eligible Bonds to be kept out of the restructuring, speculate with a default that accelerates principal and interests and sue afterwards. Although it would not frustrate the application of the CACs due to the ability of Argentina to redesign, it could limit its breadth. Argentina could accept the offers made by holders that have not obtained the majority required by the CACs, but there would remain a multitude of holdouts entitled to claim under the original issuance conditions.

c- The “pari passu” principle In the event that only a partial restructuring is achieved, Argentina will most likely suspend payments to hold-outs.

Along with the RUFO clause, the pari passu principle was the other ground of the hot judicial dispute between Argentina and holdout creditors that ensued the latest default. The latter’s argument (that ended up changing NY case law in their favor) was that any suspension of payments while completing payments under newly issued debt violated the pari passu principle (NML Capital Ltd. v. Argentina).

A doubt is cast on whether the same argument could be used to challenge Argentina´s restructuring process. The answer depends on whether the bonds underlying the claim are governed by the 2005 indenture or the 2016 one. The former provides a traditional pari passu clause that would support the claim; the latter, expressly forbids the pari passu argument for this purpose.

The broad case law stretching the reach of the pari passu clause remains in force and hence the chances of a repeated use are high mostly for the 2005 bonds.

VI. Our vision Argentina is on the verge of a new default. It is a material issue for the immediate future of the government, the private sector and society as a whole: without access to the financial markets, any recovery from the current economic depression is a utopia.

The Proposal designed to avoid it does not give many incentives for creditors to accept. It is unattractive in economic terms and complex in its legal formulation.

The stimuli are rather pressures; the proposal has a hard style that has not been successful in the recent past: there are no sweeteners to attract; rather deterrents to its rejection in order to force the swap.

Regardless of the outcome, all paths appear to lead to a litigation scenario of uncertain consequences and costs.

We greet you cordially and we make ourselves available for any further advice.