Monday, April 11, 2016


Remy is the neighbor's white Lab, an absolute sweetheart of a dog.  They're off to Spain for a bit and had everything set-up  (no kennel for Remy!) until...Anyway, we have been pressed into dog sitting which is why nothing was accomplished on Friday.

So, Argentina.  The senate OK ed the  agreement with the holdout creditors allowing Argentina to settle their debts and move on.  Good news for all concerned despite the fact that this could have happened years ago at less cost if Argentina had not been run by crooks and morons but no matter.  It's done and it is behind them and they can move on...except that they have not nearly enough money to pay this thing off.  In the real world of yester-year this might have been a problem but in the new, Faerie Coo-Coo world of international finance, No Problema, Che, we just borrow the damn money, no?  I mean what is $12,500,000,000? Nada, por uno pais del premiero mondo.  (I was actually presented with that designation once way back when...damn near died laughing)

Well, maybe.  At last report a road show has been assembled consisting of DeutscheBank, J.P. Morgan, HSBC and...ready for it...Santander, with Bilbao, UBS and Citi along for the ride.  10 years, proposed 7.75% coupon, no other details.

Now for those of you not familiar with this sort of stuff, these things usually consist of two tiers of institutions within the syndicate putting together such deals.  One tier is known as the underwriters--and that tier has various levels--and the second tier are members of the selling group.  They don't really count so we shall focus on the first tier alone.

The underwriting group, in the best of all worlds, essentially guarantees the success of the issue by agreeing to buy, with their own resources, the (in this case) bonds "when issued."  Again, in the best of all worlds, everybody will want a piece of the action and the underwriters will be able to distribute the entire issue for more than they paid for it thereby making their profit on the deal aside from any fees they may have collected.

Now $12.5 billion is a fairly good piece of change; in fact this would be the largest new issue from an emerging market country in history (sorry, Argies, you are not First World and never have been) by a wide margin.  The coupon of 7.75% is priced off the mega-deal done by the Mexican oil company, PEMEX.  Insider note:  Argentina would NEVER be seen paying more than the Mexicans..."Little Brown Gringos" as they are called in B.A.  Suffice to say, this is not going to be a walk in the park.  Why?  Consider the following.

1.  It is a hell of a lot of money.
2.  Emerging market debt, while recovering, has just taken a hell of a beating.
3.  Argentine creditors over the past 10 years have taken a hell of a beating.
4.  DeutscheBank does bonds.  Morgan does bonds. HSBC doesn't do bonds.  Santandere...who?
5.  To say that Argentina is less than prime rated...
6.  7.75% coupon.  Well, it beats the 10 year Bund but Argentina has defaulted on one thing or another every 35 years for the past 200 years.
7.  One of the problems with Argentina is that the provinces can issue debt in international markets.  That's what caused the problems in 2001.  They are going to do it again in competition with the a higher yield.  Really want Argie risk...wait a month or two.

Then again, on the positive side, the yield whores are alive and well.  The Mantra?  I will always have a chair when the music stops.  Greed always overwhelms experience.

There is one thing, however, I don't quite get.  Take DeutscheBank...please!  This is not an institution in the best of shape at least by the standards that the world overseers use today.  To lead this management group DB MUST have an underwriting commitment of at least $1 Billion and probably a good deal higher than that.  How in heaven's name can the Bundesbank, in good conscience, turn to the rest of the world and admit that they are comfortable with this risk...and make no mistake, an underwriting risk is a REAL risk.  This is a deal that cannot fail from a whole variety of reasons, but if DB winds up wearing half a billion dollars of Argie risk and has to take a 10-20% mark on that, what are Mr. & Mrs. Schultz, taxpayers, going to have to say?  Then again, I'm a long time out of this fray and I could be completely wrong.  If I am, however, I'm afraid we are in even worst trouble.

Will be following how this goes all week.  It's fascinating.  Oh, went over to see Remy in the middle of writing this piece.  Somebody still loves me.

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