Buenos Aires province extends restructuring deadline

Buenos Aires province extends restructuring deadline

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

Buenos Aires province has extended the deadline for an offer to restructure $7.15 billion in foreign-law bonds until June 19, as it considers sweetening the proposal to increase investor acceptance.

In a statement late on Thursday night, the province's Finance Ministry said it plans to "intensify" talks with creditors with the view to amending the original proposal after failing to get enough acceptance by the most recent deadline on Friday.

"There is some scope to make changes to the invitation and in turn respect the sustainability framework drawn up by the province." Buenos Aires Finance Minister Pablo López said. "In this sense, today the effort is concentrated on communicating in good faith with all the actors in order to arrive at the best possible alternative."

López did not make suggestions about how the offer could be improved.

The province, Argentina's biggest, launched the offer April 23, asking for a three-year grace period, a 55% reduction in interest payments and a 7% discount on principal payments. It also included two interest-only bonds as a sweetener.

Even so, the province was unable to get enough of an acceptance rate — about 75% — for the restructuring to be successful, prompting it to extend the talks several times already. In the process, however, the province defaulted on a $110 million bond payment on May 14, putting added pressure on it to reach a deal.

Buenos Aires province is following the lead of the federal government, which has been extending talks with creditors to restructure $66 billion in the sovereign’s foreign-law debts and also defaulting in the process on three bonds. Argentina is now seeking to reach a deal by June 12, and has added additional inducements to get creditors to accept a deal.

Analysts have said that for the provinces to restructure their foreign debts, Argentina must reach a deal first because a larger default by the sovereign would mean that any deal reached by a sub-sovereign would likely be scuppered.

Another challenge for the provinces is to revive the economy, which has fallen deeper into recession since a lockdown was imposed March 20 to try to contain a spread of the deadly novel coronavirus. The lockdown was extended on Thursday night until June 28, raising expectations of a further decline in tax revenue and an increase in public spending for the provinces.

"Argentina’s severe economic contraction, which we estimate at 6% in real terms this year, will weigh on already weak regional and local governments' revenue intake," Ursula Cassinerio, an analyst and Moody’s Investors Service, said in a statement on Thursday. "Coronavirus containment efforts will have a deep impact on tax collections given that around 80% of provinces' revenues are closely linked to economic activity."

While the federal government is assisting the provinces with a total of ARS120 billion in transfers and loans, that won’t be enough to cover their expenses, Moody’s said. And with debt refinancing in international markets "cost-prohibitive" for the provinces because of the country’s financial crisis, more of them are likely to pursue restructuring talks, it added.

Indeed, the southern province of Río Negro said on Wednesday that it will use a 30-day grace period to make an interest payment on a $300 million, 7.75% 2025 bond and then start negotiating a restructuring plan with holders of the bonds. La Rioja, a small western province, missed a $14.7 million payment on a dollar-denominated bond in March, while Chubut, Córdoba, Jujuy, Salta and Santa Fe are all thought to be struggling with debt payments.