South America

As Argentina careens toward a default, investors are paying a premium for bonds that they think will give them more negotiating power, Bloomberg News reported. They’re delving deep into legal rules governing the securities, searching for language covering collective action clauses that come into play when borrowers want to change contract terms, as in a restructuring. Notes that require a higher percentage of investors to sign off on any deal often trade at a premium of about 25% over those with a lower threshold. Bondholders have good reason to think the issue will soon be in play.

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Brazil’s largest airline, Gol Linhas Aereas Inteligentes, on Thursday reported a 242 million reais ($60.69 million) third-quarter loss, hit by problems affecting its Boeing 737 planes, Reuters reported. Gol flies Boeing 737 planes exclusively, a strategy which can help to reduce costs. But this year it has exposed the company to Boeing’s woes, including the worldwide grounding of the Boeing 737 MAX, following two deadly crashes. The carrier says it expects its seven MAX planes will receive regulatory approval to resume flights in December, based on the guidance it has received from Boeing.

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Argentina’s central bank is setting a price floor under the volatile peso in hopes to avoid a sharp plunge in the currency after an opposition-won presidential election last Sunday shifted the country firmly back to the left, Reuters reported. The peso edged up on Thursday to 59.68 per dollar, with the central bank offering U.S. currency in the exchange market at a fixed 59.99 pesos per greenback, effectively putting a floor on the trade.

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A group of bondholders is turning to one of the most recognized names in Argentine debt underwriting for guidance as it gears up for restructuring talks with President-elect Alberto Fernandez’s government over some $50 billion in debt, Bloomberg News reported. Marcelo Delmar, the former head of Latin American debt capital markets at BNP Paribas SA, has been offering advice in recent calls with some of Argentina’s largest creditors, according to people familiar with the matter.

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Brazil’s central bank cut its benchmark interest rate for a third straight meeting following on the passing of a key reform that spurred hopes of a recovery in the country’s sluggish economy amid low inflation, the Financial Times reported. The Selic rate hit a new low of 5 per cent on Wednesday after the monetary policy committee, known as “Copom”, approved a cut of 50 basis points following their first cut in over a year in July, on the day the US Federal Reserve also eased its monetary policy.

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We are a long way from the end-game in Venezuela’s debt resolution. In a recent twist, the United States Office of Foreign Asset Control precluded, for 90 days, the enforcement of a bond owed by the Venezuela oil company PDVSA, the Financial Times reported in a commentary. Payment of the bond is secured against PDVSA’s shares in its US subsidiary, the energy giant CITGO. The policy notion was to approximate the effective standstill faced by other bondholders whose legal and financial positions have been affected by US sanctions.

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Brazilian carriers Telefonica Brasil and TIM Participações will consider acquiring assets from struggling rival Oi SA if they are put up for sale, executives from both companies said on Tuesday, Reuters reported. In September, Reuters reported that Oi was in talks with the local subsidiaries of Spain’s Telefonica SA and Telecom Italia SpA to sell assets and avoid insolvency.

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Alberto Fernández already has a full in-tray of economic woes to solve when he takes office in December. The country is grappling with recession, the peso is being caged by currency controls and a pile of debt repayments looms ominously on the horizon, the International New York Times reported on a Reuters story. The center-left Peronist, who beat conservative incumbent Mauricio Macri on Sunday, will take on the top job from Dec. 10, with a juggling act to solve thorny issues like poverty while keeping the economy on track and fending off angry creditors.

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Brazil’s top banking executives were unanimous in cheering the approval of a long-delayed pension overhaul -- and quick to line up what they think should be the government’s next priority, Bloomberg News reported. With the top item on their wish list now crossed off after years of debates, bankers from Itau Unibanco Holding SA to Banco BTG Pactual SA are now championing reforms to the rules governing civil servants’ costly benefits, including changes to compensation, productivity metrics and dismissal policies.

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The team advising Venezuelan National Assembly President Juan Guaido skipped a payment Monday on the nation’s only bonds not in default, setting up a legal showdown with creditors, Bloomberg News reported. Rather than pay the $913 million due on Petroleos de Venezuela’s 2020 notes, Guaido’s advisers say they will take legal action against investors to fight any efforts to seize the collateral on the bonds -- 50.1% of Citgo Holding Inc.’s shares. Their argument is that the debt is illegal because the opposition-led National Assembly never approved its issuance.

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