Argentina, Creditors Closer to a Deal With Deadline Looming
Argentina and its key bondholders are getting closer to a $65 billion debt restructuring deal after the country defaulted on its overseas debt for the ninth time in its history.
While still at odds over several key issues, the latest changes in the proposals by the government and two groups of creditors published Thursday signal the difference between both sides is narrowing. Argentina is now weighing extending the deadline for its offer beyond June 2, giving the parties more time to reach a deal, according to people with direct knowledge of the matter.
President Alberto Fernandez’s government continues to work on amendments to its revised proposal, said the people, who could not be named because the talks are private. The negotiations may be extended by at least another 10 days, one of them said.
The country’s debt negotiations started more than two months ago, as the country said it can’t meet its obligations amid high unemployment, a sharp drop in the value of its currency and a three-year contraction made worse by the coronavirus pandemic. The government has said it needs $40 billion in debt relief to set the nation back on the path to sustainable growth.
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In its revised offer Thursday, Argentina proposed a payment moratorium for just two years, instead of three years included in its original offer, among other changes. Nevertheless, the offer won’t be binding until it’s sent for registration under the U.S. Securities and Exchange Commission.
Meanwhile, two of the nation’s largest bondholder groups, which include funds such as BlackRock Inc., Ashmore Group Plc and Monarch Alternative Capital LP, also said they submitted a joint proposal Thursday that would provide the country with front-loaded cash flow relief of $36 billion over nine years. The offer would also reduce coupons by an average of 32%, and extend maturities with no amortization payments before 2025.
According to details of the proposal, which were circulated in the early hours of Saturday morning, Argentina would not have to pay any interest for the remainder of the 2020. Interest would begin accruing next year, through a step-up coupon starting at 0.75%.
The government has called the bondholders’ proposal “insufficient,” indicating that the distance between both sides continues to be relevant and that negotiations may still fail.
“The group of Ad Hoc creditors moved in the right direction with respect to its previous offer, but the move was short and insufficient for the needs of the country,” Economy Minister Martin Guzman said in a statement late Thursday. “We hope to continue working with the creditors that make up this group, which today are the ones that are furthest from the restrictions that our country faces.”
Argentina’s revised proposal includes a nominal haircut of 7% to the principal on global dollar bonds maturing in 2030 and a 5% reduction for global bonds maturing in 2035 and 2046. No principal would be returned to investors until 2025. There’s no haircut listed for dollar-denominated exchange notes issued after a previous default. The new bonds to come out of the exchange would have coupons that gradually increase as the maturity date approaches.
Argentina also said it’s open to discussing sweeteners. An earlier proposal by the a committee of creditors known as the Exchange Bondholder Group suggested instruments tied to the nation’s gross domestic product.
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The negotiations are now entering a crucial stage, with Argentina having already extended its official offer once through June 2. The South American nation has been in default since May 22 after failing to pay its debt obligations and faces in June almost $600 million in new payments on foreign-law bonds, according to data compiled by Buenos Aires-based consulting firm 1816 Economia y Estrategia.
Argentina bonds rose this week to the highest since early March, signaling investors see the talks going in the right direction. The country’s notes have been trading flat since its default, following a recommendation by the Emerging Markets Traders Association.
“We are confident our new joint proposal provides the basis for a collaborative solution that will both serve the interest of the Argentine people and help to restore the trust of the international financial community,” according to a statement sent Friday by the Ad Hoc Bondholder Group, one of the two groups that submitted the offer.
That group, represented by White & Case LLP, features funds including BlackRock Inc., Ashmore Group Plc and Fidelity Investments. The Exchange Bondholder Group includes Monarch Alternative Capital LP, HBK Capital Management and VR Capital Group Ltd.
A third group of investors, called the Argentina Creditor Committee, has not submitted a public proposal since May 15.
— With assistance by Scott Squires
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