Buenos Aires to restructure $7.15 bln in international bonds
April 7, 2020 |
Argentina's biggest province asks investors to agree to a grace period, longer maturities and lower coupons
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Buenos Aires province said Monday that it plans to restructure $7.15 billion in foreign-law bonds with an offer that will include a grace period to restart payments and an extension in maturities along with reductions in coupons and the face value of the notes.
The debt "is not sustainable under current market conditions," the province's finance minister, Pablo López, said in a statement. "We are taking concrete steps... to advance a program that allows us to regain sustainability."
If nothing is done, the bonds will wind up in "explosive" territory, the province said in guidelines for the offer.
To put the bond payments back on a sustainable path, the province said it will ask for a grace period of several years, without saying how many, which will allow it to return the economy to growth and address critical social and infrastructure needs.
Buenos Aires will also seek a reduction in coupons in line with its primary surplus and growth targets. The economy, according to its projections, should return to growth of 3.8% to 4.9% in 2021 from a 1.3% contraction this year and then grow by 2.2% to 2.8% in 2022 before settling into steady 1.7% to 2.2% expansion through 2030.
The primary fiscal deficit will be 0.3% in 2020 and 0.4% in 2021 before narrowing to a balance in 2022-23 and widening to 0.2% to 0.3% in 2027, according to the guidelines.
A maturity extension will be offered along with potential haircuts in the current face value of the bonds to reduce the risk of refinancing, it added.
The province, Argentina's largest, narrowly skirted default on a $750 million bond February after failing to get the holders of at least 75% of the 10.875% 2021 notes to agree to a four-month deferment on a $250 million payment. The government dipped into its own finances to make a last-minute payment and put its focus instead on restructuring all of its foreign-currency debts.
At the time, Gov. Axel Kicillof, a former national economy minister, said the offer would have to wait for the federal government to make the first move on restructuring its debts. That came on March 31, when the federal government laid out its guidelines for restructuring $83 billion in foreign-currency debt, saying it will seek a grace period, an extension in maturities, a reduction in coupons and a potential haircut.
Like the sovereign, Buenos Aires said it wants to restore economic growth to be able to return to paying the debt on time without concerns of defaulting.
While the province said it aims return to growth in 2021, it warned that it may take longer, given that it has not calculated the COVID-19 pandemic into its economic forecasts.
"We consider that this situation imposes significant downside risks in all projections and we can assure that it will have a materially adverse effect," the province said. "With the information available at the time, we can anticipate a fall in estimated tax revenues for April of the order of between 35% and 45%."
Argentina shut down the economy from March 20 to April 13 in an effort to slow the spread of the coronavirus, a move that has led economists to warn that the national economy could fall by more than 5% this year after originally forecasting a 1% decline.
This is another sign, the province said, that its public debt is "unsustainable."
By way of example, it said the average life of its debt is 3.3 years and the foreign currency maturities with the private sector are $5.5 billion until 2023. The province is also paying 9% interest on debt and lacks access to affordable credit, it said.
Last month, the province hired Bank of America and Citi to help restructure the foreign-law bonds and tapped D.F. King, a New York-based proxy solicitor and consulting company, as "information agent" to identify holders of the sub-sovereign issuer's bonds.