Bondholders reject new offer from Argentina's Mendoza province
July 9, 2020 |
Latest offer had sweeteners but creditors say does not reflect payment capacity
Creditors holding debt issued by the Argentine Province of Mendoza rejected the government's latest amended restructuring offer, characterizing it as forcing them to "provide a subsidized refinancing" on obligations currently in default.
Mendoza, a western province of Argentina, said on Tuesday it has extended an offer to restructure $590 million in 8.375% 2024 bonds by three weeks and included an early acceptance clause and other sweeteners to gain bondholder acceptance for a deal.
The province, best known for its malbec vineyards, said creditors have until July 27 to accept its revised proposal after failing to get enough adherence to the original offer — presented on June 5 — by a deadline on Monday, according to a securities filing.
"While the Amended Offer represents a clear improvement to the initial proposal, it still does not reflect adequately the medium-term payment capacity of the Province," a statement from the Ad Hoc Group of Bondholders of the Province of Mendoza said on Wednesday.
The group's statement said they rejected the offer and said they already put forth several restructuring proposals "which appropriately address the Provinces's legitimate needs."
In their statement the creditors said the government's proposals included a significant extension to maturities "which fall due well into the future at a time when the Province ought to have access to markets for its refinancing. Further, the Province seeks to extend these maturities at rates significantly below market. In effect, the offer represents an attempt to force current bondholders to provide a subsidized refinancing to the Province for maturities that the Province should properly and timely refinance in markets at then-prevailing rates."
On Tuesday, the province's government unveiled an amended offer which it says was the result of consultations with the creditors, the results of which are the extension of the invitation and a sweetener for early acceptance. Creditors who accept the swap by July 20 will get an additional $41.88 per $1,000 for the existing bonds they hold.
As well, Mendoza said it will pay higher interest rates on the new bonds and will make principal repayments in greater frequency from November 19, 2023 until maturity on November 19, 2029. The province did not provide further details on the amended proposal.
The offer, which is being managed by Credit Suisse and AdCap Securities, originally called for extending the maturity to 2029 and reducing the interest rate to 4%, with payments to start after an 18-month grace period. In the first two years of payments, the interest rate will be 2% before stepping up to 4%, according to the original proposal.
Creditors countered that they "offered significant permanent near-term cash flow relief as well as providing maturity extensions should the Province require them at the prevailing contractual rate of interest on the existing notes." They say their offer to the province will allow them to provide essential services, remove uncertainty over the ability to pay their obligations and the ability to tap the markets for future financing needs.
The group said they remain open to dialogue with the province.
Mendoza's 8.327% 2024 bond, has been in default since May traded unchanged on Wednesday at a bid price of 51.125, or 2,406.5 basis points over the benchmark 3-year US Treasury, according to data provider Refinitiv. The province missed a $25 million payment on the 2024 bonds due May 19, the grace period for which it had time to make the payment has expired.
Mendoza, best known for its vineyards and Aconcagua, the highest mountain in the Americas, also wants to refinance ARS5.2 billion in peso-denominated bonds due in 2021.
The amended offer from Mendoza came on the heels of Argentina’s decision on Sunday to sweeten its offer for restructuring $66 billion in foreign-law bonds, including by trimming the haircut on the principal on the eligible bonds, increasing the coupons and shortened the maturities on the new bonds it is offering in exchange, which was first made on April 21. The offer also includes accrued bonds as sweeteners and a shorter grace period on payments. Some creditors have accepted the terms, while others have since rejected the new offer.
Argentina's sovereign bonds continue to rally after some creditors voiced support for the new offer. 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.