Argentina expects last-minute debt deal

Argentina expects last-minute debt deal

Asset Management Bonds Debt Capital Markets Fixed Income Politics Coronavirus Argentina United States

Editor's note: LatinFinance is making some of its most important coronavirus-related material available to all readers. Visit our coronavirus section for all our coverage and sign up to receive the Daily Brief newsletter in your inbox every morning.

Argentina's federal government expects that any deal on restructuring $66 billion in foreign-law bonds will come at the last minute, as further improvements to the offer are being considered, officials said.

"The creditors will make their decision at the last moment, when they have the most available information," Sergio Chodos, Argentina's representative to the International Monetary Fund (IMF), said on Radio 10 on Monday.

The government wants to reach a deal by Friday, the latest deadline for the offer that was launched on April 21. While the original offer was immediately rejected by a large number of creditors, negotiations have since narrowed the gap as both sides have 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.

The improvements came days after the country defaulted on three bonds after missing interest payments at the end of a 30-day grace period.

Despite the default, Chodos said the government is optimistic about reaching a deal with creditors, using as an example the country's previous restructuring of nearly $100 billion in 2005. In that offer, "a number of creditors spent the entire subscription period saying that the offer was going to fail and that it was a disaster, and at the last moment they entered," he said.

Even so, it could still prove a challenge to rally enough creditors to get the average of 75% acceptance for each of the bonds for the offer to be successful by forcing any holdouts to accept the terms.

On Sunday, Economy Minister Martín Guzmán expressed this concern in a video interview with Perfil newspaper in Buenos Aires.

"There is no creditor that in itself has a significant amount with the ability to channel an agreement," he said. "What is important is to generate critical mass so that the rest of the creditors understand that it is in their interest to be on the side of an agreement."

When asked if the negotiating period could be extended once again, Guzmán said the aim is to wrap things up as quickly as possible, adding that this could mean a further revision of the offer.

"We are working with creditors to get as close as possible to a point that will serve Argentina," he said. "We are looking for an agreement that protects Argentina, that serves all of Argentina, not only some sectors. This is a process. Solving it as quickly as possible is best for all parties, but the most important thing is to solve it well. That is a path that must be followed, and today we are not in a position to amend the offer but we do aim to amend it."

Indeed, the negotiations come as the economy faces a worse-than-expected recession this year, a response to an economic lockdown to try to contain a spread of the deadly novel coronavirus.

On Friday, the central bank published the results of a survey of economists from the end of May, showing that they had revised down their estimate for the economy this year to a contraction of 9.5%, worse than the 7.5% decline they forecast at the end of April. That would be the worst contraction since a 10.9% drop in 2002, one of the worst economic crashes in Argentina's history.