Argentina extends restructuring offer to Monday

Argentina extends restructuring offer to Monday

Bonds Debt Capital Markets Corporate & Sovereign Strategy Debenture Economy & Policy Fixed Income Funds Argentina Latin America Coronavirus

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Argentine President Alberto Fernández said on Saturday that an offer to restructure $66 billion in foreign-law bonds is still open until Monday but could be extended, a decision that came after few investors accepted the original proposal for a three-year grace period and sharp reduction in interest. 

“The possibility of extending the offer continues until Monday, May 11,” Fernández said on Twitter after meeting with his economy minister Martín Guzmán. “When this term expires, we will define the steps to follow. As always, our goal is to take on commitments that we can meet.” 

This has been the government’s stance since launching the offer on April 20, that it can only agree to a debt repayment plan that is sustainable. 

The trouble is that not enough investors — at around three-quarters, depending on the bond — accepted the offer by the May 8 deadline in order to trigger collective action clauses that would make it legally binding for the rest of the bondholders. 

The government has not announced the level of acceptance, but Argentine newspapers reported late on Friday that it didn’t reach 20%, citing unnamed sources close to the proceedings. 

The government’s proposal is for a three-year grace period on making any payments, a 5.4% cut to principal, and a 62% reduction in interest payments, what would provide the country with $41.5 billion in debt relief, largely by reducing the interest rate on the bonds to an average of 2.33% from a current 7%.

The offer, however, has been rejected by three groups of investors, who have argued that if falls short of what they think is needed to put the country back on track for sustainable economic growth and financial stability.

This has led to a game of chicken to see who would concede first, and it may be the government. Two days before the deadline, Guzmán said in a webinar hosted by Columbia University that he was willing to give bondholders more time to make counteroffers, of which he said only one had yet been made but that it was not good enough. 

On Saturday, he thanked those who accepted the offer and invited the rest to do so by Monday. 

“Dialogue continues in the pursuit of an agreement that Argentina and its creditors can sustain,” he said on Twitter. 

Argentina has until May 22 to make a deal without falling into default, what would be the ninth in its history. May 22 is when a 30-day grace period ends for making a $500 million payment on the three Global Bonds that are part of the restructuring proposal. 

While the country could make the payment, Fernández and Guzmán have said it doesn’t have the money to do so, and even less so now as it contends with the economic and financial fallout of the COVID-19 pandemic. On Friday, Fernández announced an extension of an economic lockdown in place since March 20 to try to contain the spread of the deadly novel coronavirus. While the lockdown will be eased from Monday in parts of the country, helping to partially restart the economy, Guzmán has forecast a 6.5% recession this year, the worst since a nearly 11% collapse in 2002. 

The rejection of the offer appears to have pushed the government to be less adamant. While Fernández and Guzmán have both said the country is already in “virtual default,” raising concerns among bondholders that defaulting was not out of the question, on Saturday Fernández said he would prefer to resolve the debt crisis. 

“No one wants to default,” he said on FM Futurock radio, adding that the offer as it stands means that bondholders don’t lose, “they only make less.” 

Guzmán has said on several occasions that this was the final offer, but Fernández said in the radio interview that it would entertain proposals from the bondholders. 

“I am aware that there may be counteroffers [from the bondholders] in the coming days,” the president said. “The negotiation continues. I hope that this time the creditors understand and accompany us.”