Buenos Aires province seeks $500 mln for coronavirus response

Buenos Aires province seeks $500 mln for coronavirus response

Coronavirus Bonds Loans Debt Capital Markets Economy & Policy Fixed Income Politics Argentina

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Buenos Aires province has submitted a bill to the legislature for authorization to borrow up to $500 million from multilateral lenders and sell ARS28 billion ($220 million) in peso-denominated bonds and notes, even as it seeks to avert default on more than $7 billion in foreign currency bonds.

The province, Argentina's biggest, sent the bill to lawmakers late Tuesday, a source at the provincial Finance Ministry said on Wednesday.

If the legislature passes the bill, the province will be able to open credit lines for up to $500 million with multilateral lenders to buy health supplies, sustain food programs and create job opportunities for those people left without work because of the COVID-19 pandemic, the source said.

Argentina has been on economic lockdown since March 20 to try to contain the spread of the deadly novel coronavirus, which has surged to 6,563 confirmed cases and 321 deaths on Wednesday from a first case at the start of March, according to data compiled by the Johns Hopkins Coronavirus Resource Center.

The federal government started easing the quarantine at the end of April and this week allowed most provinces to reopen more of their economies, but it has kept the stay-at-home order strictly enforced until May 24 for Greater Buenos Aires, home to 15.6 million people, or 35% of the nation's population of 45 million. Most of the cases have been in the federal capital and its suburbs in the province.

The other financing plans call for issuing up to ARS20 billion in peso-denominated bonds to pay debts owed to government suppliers.

The supplier bond, as it is called, will be voluntary for businesses to accept instead of cash, but the government said it will help provide liquidity in the market during the economic crisis. Argentina is in its third year of recession, with the economy forecast to contract by more than 5% this year.

The third proposal is to expand the sale of treasury notes by up to ARS8 billion, the source said.

The province has been relying on short-term treasury notes as one of its only sources of financing as it tries to restructure $7.15 billion in foreign-law bonds to avoid default.

So far, most bondholders have rejected its offer to swap 11 outstanding bonds for new notes with longer maturities, a three-year grace period on payments, a roughly 55% reduction in interest payments and a 7% haircut on principal payments. The offer includes two interest-only bonds as sweeteners.

This led the province this week to extend the offer until May 26, but there is speculation it could default as soon as this week. The province failed to make more than $100 million in amortization payments on dollar- and euro-denominated bonds on May 1, giving it a 10-day grace period that, based on local holidays, means that it must make the payment on Friday or enter into default.

On Monday, Buenos Aires Finance Minister Pablo López blamed the country's economic hard times for the constraints on paying debt on time.

"The serious economic and social situation, aggravated by the crisis resulting from the pandemic, strongly limits the margin when facing a debt in foreign currency that is unsustainable," he said on Twitter.