Saturday, August 8, 2015

Some Findings About Debt Restructuring Practices in Argentina

Carlos Robles

As I mentioned in the last post, the next entries will be focused on the research I did in Argentina and Mexico City. I will talk a bit about the progression of the investigation, challenges, and reactions about being abroad.

The research project focused on the strategies used by multinational Mexican and Argentine firms that filed for bankruptcy and whether they used their local bankruptcy laws, or the United States’ Chapter 11 to restructure their debt.  Before starting, I did not have a lot of background experience on this topic, but I was thrilled for the opportunity to learn more about it.
Now a bit on what I found.  Argentina faced its biggest economic crisis in 2001 and, long story short, one of the biggest problems was that the Argentine peso and the U.S. Dollar were valued on a 1:1 ratio, and when the true convertibility kicked in after the 2000’s, anyone who had debts in USD now had their debts almost quadrupled. Among other factors in the crisis, this was a very severe blow to the private sector. Because of that, there were a lot of companies falling under financial distress. But at the time, proceedings to restructure debt or file for bankruptcy were simply not very efficient. To change that, the government reformed the law in 2002 to expedite those processes. The change would be the equivalent to a Pre-Packed Chapter 11 in the United States, where the debtor and the creditors come to an extrajudicial agreement and then present it to the judge to approve the new payment plans. This made the process a lot faster and more seamless. Due to this change, most companies opted to use that process instead of seeking protection under Chapter 11 in the United States, even if they did have some assets abroad.
The most interesting finding, in my opinion, was the fact that there were indeed some Argentine companies that were involved with Chapter 11 in some capacity, five of the biggest companies in the country, actually. But what was interesting was that the U.S. creditors wanted to bring them to the United States to file for bankruptcy instead of letting them do it in Argentina.  However, these companies’ best interest were served in Argentina’s courts, so they had to show the New York District Court Judge that Argentina had bankruptcy proceeding similar to those in the United States. This was all due in part to the change in the law of 2002. Since that change in the law, a lot of Argentine companies were able to successfully restructure their debts and continue operating.

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