Franco Uccelli of Bear Stearns commented that this was the first time that in an open forum the minimum participation threshold and the possible non-payment to hold-outs has been suggested. In a release today, Uccelli interprets that
“while the Dominican government appears to be very confident about the success of its exchange operation, it may be leaning towards adopting a tough stance on investors who choose not to tender their bonds and participate in the exchange. The message seems clear: hold-outs beware.”
In his 12 April release, Uccelli further comments:
“No mention has been made recently of the planned treatment of the pending coupon on the 2006 bond, with the government simply stating instead that it was reassessing its options based on the feedback it received from the market last week. We believe that the coupon payment is currently being used by the government as a bargaining chip and that no definitive political decision (by definition rather unpredictable) on it has yet been made. As we see, a possibility among many may be that the authorities try to link payment of the coupon to participation in the exchange. However, given time constraints, it seems unlikely to us that the government can carry out this option without entering a temporary default situation, something that while the government mentioned as a possibility we believe it will try to avoid.
“We are of the view that the interest of both the Dominican government and the market would be better served if the pending coupon is paid before the end of the grace period on April 26. Making the coupon payment in full and preventing a default would earn the Dominican Republic a great deal of goodwill from the market at a time when the country is trying to generate high participation levels in a bond exchange, it would keep the restructuring process much cleaner, and it would eliminate the potentially high legal, reputational and financial costs associated with a default. Based on an informal investor survey, we believe that most bondholders would gladly trade a higher rate of interest capitalization during the remainder of this year and next for an averted default. At the moment, we are encouraged by what we perceive as a good understanding from the part of the government of the serious consequences that a default would engender and remain hopeful that one will be prevented. After all, for more than a year the Dominican government has done everything in its power not to default on its bonded debt, so it would make no sense for it to default now that the country has come such a long way and is so close to the finish line.”