Argentine creditor groups reject latest sovereign restructuring offer

Argentine creditor groups reject latest sovereign restructuring offer

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

Two groups of Argentine creditors rejected on Wednesday the latest debt offer from the government, saying the sweetened proposal to restructure $66 billion in foreign-law bonds was a step in the right direction but falls short of a deal they can accept.

"Neither the Ad Hoc Bondholder Group nor the Exchange Bondholder Group was consulted regarding the proposal’s terms. As a consequence, the proposal does not reflect the vitally-needed input of Argentina’s largest creditor groups to deliver to Argentina a fully successful debt restructuring," the two said in a joint statement.

At the same time it rejected the latest offer, these two groups of creditors said the government's latest terms were "a basis for constructive engagement" and that the path to a "full resolution of remaining issues is in sight."

"We, as Argentina’s largest creditors, remain ready to approach final discussions with responsibility and good faith, and urge Argentina to join us in that effort without delay," the statement said.

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.

On Monday the government's updated offer gained some support from two creditors, Gramercy Funds Management and Fintech Advisory Inc.

The Ad Hoc Argentine Bondholder Group is comprised of 13 international asset managers including AllianceBernstein, BlackRock, Fidelity Investments and T.Rowe Price. The Exchange Bondholders Group, advised by Dennis Hranitzky of Quinn Emanuel Urquhart & Sullivan, LLP, hold nearly $4 billion in bonds issued by Argentina in connection with its debt exchanges in 2005 and 2010.

Another creditor group known as the Argentina Creditor Committee, advised by Mens Sana Advisors, has not weighed in with a response to the government's latest terms.

LATEST PROPOSAL

In the updated proposal, Argentina's Economy Ministry said it reduced the principal haircut on the eligible bonds, increased the coupons and shortened the maturities on the new bonds it is offering in exchange. Argentina made its initial offer on April 21. In addition the government introduced accrued bonds as sweeteners: a dollar-denominated one paying 1% interest and euro-denominated note paying 0.5% interest, and both maturing in 2030. The accrued bonds will be “delivered as consideration for any accrued and unpaid interest from and including the last date on which interest was paid under the eligible bonds up to but excluding April 22, 2020,” it said.

In another change, the ministry said it will allow holders of eligible bonds in euros and Swiss francs to swap them for new bonds denominated in dollars, including the accrued bonds.

The ministry also shaved the grace period on payments to one year from an original three years, saying that interest payments will start September 4, 2021, but only for those that accept the restructuring offer.

Argentina's president, Alberto Fernández, hinted that this was the final offer in a statement on Monday. “It is the maximum effort that we can make,” he said.

Argentina's sovereign bonds continue to rally as the two sides appear to be moving closer to a resolution. On Wednesday the 5.875% 2028 bond traded up 2.38 points to bid 41.13; the 2038 Par bonds climbed 1.25 points in price to bid 41.50; the 4.625% 2023 issue rose 0.80 points to bid 44.40; and the ultra-long 7.125% 2117 bond gained 2.25 points to bid 41.

The economy has been on lockdown since March 20 because of the spread of the deadly coronavirus. The lockdown, which is due to end July 17, is expected to result in the economy shrinking by up to 12.9% this year, according to a survey of economists by the central bank published on Friday. That would be worse than a 10.9% contraction in 2002, then considered the sharpest one-year drop in the country’s history.