THE THEORY OF ARGENTINE DEBT AND THE END OF THE AGREEMENT.

When we talk about the potential advantages of collective action clauses (CACs) to facilitate debt restructuring they have long been recognized and have been standards for bonds issued under English law since the 19th century. When we deal with class action, it allows us to specify for each contract a large majority of creditors who accept the payment terms that are binding on everyone, including those who voted against. As we have been observing for 26 years the market convention on Wall Street, not to include collective action clauses, in order to achieve future comprehensive debt restructuring with unanimous agreements on the holders of those bonds. A unanimous agreement means that the debt restructuring is potentially withheld as a harassment to the actions of local creditors and critics who hope to receive better terms in the following offers. This can delay the restructuring of the offers to obtain the benefit of the majority of the creditors and the indebtedness and it can also leave the debtor- (Argentina) - totally vulnerable to the different opinions of the general public. In response to these concerns, the first agreement to change the Wall Street market convention was to include collective action clauses based on the Mexican crisis in the years 1994/1995.The second CACs official collective action clause was in 2002 with the crises in Turkey, Brazil and also Argentina. As we finish with the explanation of how the CACs clauses were created, we will begin to describe the behavior and its purpose in the current restructuring for Argentina.First, we must examine the potential range of contracts and which may be included in the sovereign bond, and Second, we must include the levels of the new market, which will have to exceed the majority voting threshold of 75% for the changes that they impact the financial equations of each of the Bonds that are intended to be restructured. In February 2003, Mexico made a policy decision to include collective action clauses in its sovereign bonds issued under United States law. Those bonds issued by Mexico closely followed the clauses of the CACs model, including above the 75% threshold. But some subsequent problems in other countries - Brazil, Belize, Guatemala and Venezuela - opted for higher thresholds, in the order of 85%, which unanimously impacts 100% of creditors.That is why, in contribution to this working document, we will use the theoretical model of financial examination on each CACs clause. In order to understand the current CACs we must ask the following questions: What will be the factor that determines the election of this percentage of voting to improve the threshold? Is there a valid reason with different issuers that you want to set different but specific thresholds for each sovereign debt security in Argentina?Our report advises debtors at the DEBT negotiation stage to include some formulas and mathematical theories that apply to equilibrium in that function of containing the successful threshold. Therefore, the reduction of that percentage belonging to the threshold arising from these CACs, must provide and include guarantee insurance to achieve debt restructuring, which in turn must be implicitly reflected in the behavior of the OFFER, which is consequence of the variation of the projected interest on the risk of future default. Risk neutral debtors prefer high thresholds, due to the cost of forgetting some concepts about the reference rate and its Present Value, which is tied to the country's growth. Adverse risk debtors may prefer lower CACs, for lower risk conversion levels, at those thresholds the debtor deserves more credit and a future Bond issue with higher CACs thresholds is highly likely. In other words, the different risk thresholds arise from the country's creditworthiness. On the other hand, also apply both liquidity conditions and restructure the debt after the crisis = DEFAUTL. That is why liquidity increases the solvency prospects and the recovery rates expected by creditors will affect the decision to restructure the debt. These interactions mean that most crisis-default are in the "gray zone" between liquid purity and solvency purity. These two gray zone models, which allow the behavior of interactions between short-term liquidity and debt restructuring after a solvency crisis. The framework allows exploring the interaction between liquidity and solvency crucibles. For the clarity of the analysis, insolvency is determined by sustainability of payment and, therefore, it would also be applicable to the current financial crisis, however, this leaves aside the additional sovereign restriction of the will to pay (eaton and gersovitz nineteen eighty one). But this additional layer of uncertainty only reinforces the complexity of the "gray areas". Taking these interactions into account is important when evaluating the design and potential benefit of CACs crisis resolution measures. Depending on the different aspects, the elevated gray areas should be presented, the determination of interests and their mode should be discussed, the optimal threshold of the CACs should be selected and finally the political impact on treatment. This is a model where you want to finance a risk project related to collective clauses, these clauses stipulate that a proportion (K) or more of creditors vote to change the financial terms of the contract that unite the rest. The selective action threshold of the debt threshold (K) of a set of thresholds [K, K], where K, for example, could be 75% and K 80%. A continuous series of small neutral risk creditors buy the bond, and each creditor has a legal cost> 0, which is the cost that this creditor will face if the creditors collectively choose a restructuring of the debtor's offer, in short, capture this profit derived from the costs to debate and prolong the negotiation process.The probability distribution function of legal costs among creditors is common knowledge. Short-term bonds, creditors face the choice of Treasury funds at an intermediate stage and may decide not to grant funds to their financing to the last period of the game. The project depends on the recovery on the realization of a fundamental element ?, we assume that the ex-ante distribution of ? is uniform [0, b]. Before the creditors have the decision made, a signal will be received on the fundamentals (xi = θ + (Si)) wherever i.i.d. (Random Variables) with a uniform distribution over the interval [?ε, ε]. On this explanation the creditors before closing must receive a fixed payment so that at the end of (1 + r) it can achieve success. If the model fails, the restructuring process continues in the same way, without leaving any evidence of the above, the debtor must project the indebtedness under the contractual conditions of the bonds to be restructured and their flow of funds, for which the vote of creditors is to reject the offer. In the case if (K) or more creditors vote to accept the offer, everything would go ahead to the restructuring process, otherwise, the creditors must proportionally share the residual project that returns the legal cost of the restructuring, this means that the game follows, where the debtor chooses a threshold of CACs (K) ∈ [K, K] to insert into the contract the risk of insolvency of the Bonds to be restructured. In this case, the debtor must offer the creditors a shared risk where the debt stock must be balancing the risk, which also the creditors observe the function (xi = θ + (Si)) and it is at this moment where the threshold You can confirm acceptance of the OFFER. This last interpretation returns you to the restructuring given by θ - f, where f is the deadweight damage to the project since the initial settlement. That is, if θ - f - f ≥ (1? f) (1 + r) the debtor pays the creditor and meets its obligations, the restructuring is successful. Otherwise, the project fails, the debtor fails and the restructuring phase that we develop below is introduced.The debtor makes an effort to improve the offer in (1? f) (1 + r) and this means that the offer is accepted and ends up restructuring from which the creditors receive a payment according to the offer presented by the creditors, but the payment The end is the other stage of the discussion about restructuring, of which the voting subgroups of the area. In this case, the debtor makes a request for creditors to report to the SEC the payment of those restructured bonds, where the creditors in that proportion that neither accepted nor signed the agreement, decide at that time whether the offer is rejected. Because the bond has class action clauses, the debtor will offer any absent creditor for a prolonged period the incidence of accepting those higher or lower credits. If fewer (K) creditors accept the offer, the claims are processed through the courts and the debtor remains in default. In this event, each creditor will eventually receive a proportional share of the total return of those Bonds and registered with the SEC. From this last event, a large extension is joined, enough for the marginal creditor (1-κ) -credit who votes a restructuring to accept the offer and end DEFAULT. In this case, the CACs ensure that the restructuring is not lost and resources are not spent on litigation, bondholders are sought abroad and complies with the class action. In this last explanation on the basis of the non-acceptance and complication of debt restructuring, it is that the strategy of reaching a specific agreement with creditors was never correctly fulfilled, taking into account that the important thing is to understand that the clauses of collective actions are very important to obtain a successful restructuring, this did not happen, so two things can happen depending on the offers and documents presented by the government A: that the restructuring period extends until the end of October / 20 with a terrible negotiation, where Argentina ends with a NPV of the Bonds at USD 55 and with a 10% exit from the yield, as the creditors want and B: that the agreement with the creditors is not reached. In this model, my final conclusion: The path taken is not adequate, for a simple reason, the bonds have CACs clauses, where the majority percentage is extremely important to achieve SUCCESS.Lic Pablo Rutigliano