Argentina and creditors dig in as positions harden

Argentina and creditors dig in as positions harden

Asset Management Bonds Debt Capital Markets Corporate & Sovereign Strategy Fixed Income Funds Argentina Latin America

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Argentina and its various creditor committees, which had been operating under non-disclosure agreements, released details on Wednesday of their proposals for restructuring the nation's roughly $66 billion in foreign-law sovereign debt, while also pointing fingers at one another for failure to reach a deal in dueling statements.

The government released a statement that reiterated its negotiating position with terms for the restructuring, but did not specify that the NDA's would be extended beyond Wednesday with the latest deadline for talks still scheduled for June 19th. The deadline has been extended several times already under NDA's to allow all sides to negotiate their incremental concessions outside of the public eye. 

"Restricted Investors responded to the information Argentina provided proposing adjustments, described under separate cover, that Argentina cannot responsibly commit to, some of which are largely inconsistent with the debt sustainability framework necessary for Argentina to restore macroeconomic stability and make progress towards a program with the IMF (International Monetary Fund)," the government statement said.

"Furthermore, the negotiation process with our investor community has revealed that investor demands frequently diverge, and cannot be readily reconciled," the government said.

Countering that argument was a statement released the Ad Hoc Argentine Bondholder Group, which said that Argentina had "walked away" from a solution that offered a comprehensive and sustainable debt restructuring.

Calling the negotiations a "failure", this group, which is made up of 13 international asset managers, including AllianceBernstein, BlackRock, Fidelity Investments and T.Rowe Price, and bills itself as the largest creditor group, said it had offered "cash flow relief in excess of $38 billion over a nine-year period and is designed to fit within both the macro-fiscal framework expressed by the Government and the IMF's debt sustainability framework."

Still, this could all just be posturing, said one creditor who spoke on condition of anonymity. "Both sides have dug in. There are a lot of egos involved and bluster. We are in the endgame," the creditor said.

The Ad Hoc Bondholder Group along with the Exchange Bondholder Group, issued a joint debt restructuring proposal to the government on June 14, where the top interest payment reached 5.75% on some of the bonds.

Another group of creditors, led by the Argentina Creditors Committee, Gramercy Funds Management, Fintech Advisory and Oaktree, released the details of their proposal, where no interest payments are above 5%. They too said their proposal, released on Wednesday, offered $40 billion in cash flow relief until 2028. Their proposal outlined that the weighted average coupon on their modified offer was 3.91%. This group is being advised by UBS and Mens Sana Advisors.

The government's original offer, launched on April 21, was immediately rejected by a large number of creditors, but the gap narrowed as both sides made concessions. On May 26, Argentina improved its offer by adding an accrued bond as a sweetener and including higher yields and shorter maturities on the new notes to be issued as part of the debt exchange. It also shortened the grace period to two years from three.

Given there are so many groups involved, one of the biggest challenges will be to get everyone to agree. Any deal must be accepted about an average of 75% of the creditors for it to be successful, as in the supermajority obliging all holdouts to accept the terms.

Argentina's government, led by President Alberto Fernandez, a center-left Peronist, has stuck to his message that the government will not pay more than it is able. The surge in public spending to deal with the COVID-19 pandemic has led to a widening fiscal deficit, compounding the recession the nation has been in for three years. That economic decline before the pandemic is at the root of the latest debt restructuring.

The country has defaulted on its debt nine times. In February, the IMF, Argentina's largest creditor with a $44 billion loan out of a $57 billion credit line, called on private bondholders to make a "meaningful contribution" so Argentina can emerge from its debt crisis.

(Additional reporting by Charles Newbery in Buenos Aires)