Argentina puts off restructuring deadline

Argentina puts off restructuring deadline

Bonds Asset Management Debt Capital Markets Corporate & Sovereign Strategy Economy & Policy Fixed Income Funds Regulation Politics Argentina US Coronavirus

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Argentina's Economy Ministry said on Monday that it delayed the deadline on a restructuring proposal for $66 billion in foreign-law bonds until May 22 after failing to get enough bondholders to adhere to the offer by most recent deadline of May 8.

Based on the new schedule, the ministry said it would announce the results of the offer by May 25 and issue the new bonds by May 27, according to a statement that left open the chance for further extensions.

In a related statement, the ministry said that it has restructured ARS315 billion ($4.7 billion) in local-law bonds through 17 tenders despite the global economic crisis stemming from the COVID-19 pandemic. This has reduced interest rates and lengthened maturities in a wider effort to achieve a debt profile in line with the country's capacity to pay.

However, the offer to restructure the country's external debt failed to impress holders of the bonds.

The proposal calls for a three-year grace period to give the economy time to recover from a recession in its third year, plus a 5.4% cut to principal and a 62% reduction in interest payments. The latter would provide the country with $41.5 billion in debt relief, largely by reducing the interest rate on the bonds to an average of 2.33% from the current 7%.

Three groups representing a large number of foreign bondholders rejected the offer, forcing Argentina to extend the deadline, which originally had been set for March 31 and then moved to May 8.

"While many of our bondholders supported Argentina's invitation, other significant groups of creditors did not," the ministry said. “Among those that rejected Argentina's offer, several have indicated that there are better alternatives that can be reconciled with the objectives that this administration has set for itself and for the Argentine people."

The ministry said it is open to discussing these alternatives. "We will consider in good faith any debt-restructuring proposal that meets the sustainability objectives we need to secure, including combinations of interest rates, capital reduction, grace periods and extension of maturities different from those we have proposed," it said.

On Saturday, President Alberto Fernández, who had extended the offer until Monday, said he expects a number of bondholders to make counteroffers, adding that he wants to avoid default.

There is not much time. Argentina faces a $500 million payment on three bonds in the restructuring proposal on May 22, when a 30-day grace period ends since missing the payment on April 22. That means it either has to pay — something the government has said it cannot do — or will go into a hard default, the ninth in Argentina's history.

While there was one counteroffer before the May 8 deadline, Economy Minister Martín Guzmán said it was not acceptable.

Emanuel Álvares Agís, a former deputy economy minister from 2013 to 2015 — when the current political party was in power — and now director of the PxQ Consultora, said on Sunday that he agreed with the government on that, saying the offer only would have "kicked the problem forward."

He said the question now is whether bondholders will improve on their counteroffer so it is more amenable.

"I prefer an imperfect agreement to a default," he said on Radio 10. "But the agreement that the bondholders had put on the table is unsustainable. In that case I prefer a default."

Daniel Marx is not too optimistic. The economist, a former secretary of finance from 1999 to 2001 under an opposition coalition, said the diversity of opinion among the foreign bondholders makes it hard to get them to agree on a counteroffer.

He said on Radio 10 that Guzmán’s team should focus on negotiating a pre-agreement with the investment funds with the largest share of the bonds, adding that he understands that they want a shorter grace period and more effort by the government to achieve a fiscal surplus.

But it is not going to be easy, he said. "There are going to be ups and downs right until the end."