Argentina has reached an accord with its biggest creditors on terms for a restructuring of $65bn in foreign bonds, after a breakthrough in talks that had at times looked close to collapse since the country’s ninth debt default in May.
In a statement on Tuesday, the government said the agreement “will allow members of the creditor groups and such other holders to support Argentina’s debt restructuring proposal and grant Argentina significant debt relief”.
If it gains approval from enough investors, the deal means that the country can avoid potentially years of exclusion from capital markets as happened after Argentina's catastrophic 2001 default. That triggered an acrimonious legal battle with so-called “holdout” bondholders that was not resolved until 2016.
Various bondholder groups have been negotiating with Buenos Aires since the leftist president Alberto Fernández took power in December, initially seeking more extensive debt relief than creditors were willing to countenance.
BlackRock, Ashmore, Fidelity and T Rowe Price were among members of the largest group, while hedge funds VR Capital and Monarch Alternative Capital were involved in a separate bloc. GMO was part of the smallest grouping. In order to apply greater pressure on the government, the three groups banded together in July, proposing new terms and penning a joint letter to Martín Guzmán, Argentina’s economy minister, highlighting their united front.
Mr Guzmán quickly rejected the latest proposals from some of those bondholders, arguing they would “subject Argentine society to more distress, and we are not going to do that”. He has since agreed to make some debt payments sooner than expected — a concession that has led to a breakthrough.
“People were just exhausted by this,” said one person familiar with the bondholder side. “People were resigned to the fact that it makes more sense to be done with this and move on.”
In addition to tweaking the clauses of the new bonds that will replace the old defaulted debt to strengthen creditors’ hands in any future restructuring, “Argentina will adjust certain of the payment dates . . . without increasing the aggregate amount of principal payments or interest payments that Argentina commits to make while enhancing the value of the proposal for the creditor community,” the statement added.
The new terms suggest a recovery value of around 55 cents on the dollar — below the more than 60 cents on the dollar initially requested by certain creditors but exceeding the approximately 40 cents on the dollar recovery value first offered up by the government, which was advised by Lazard.
“Both sides had to give ground,” said Graham Stock, a senior strategist at BlueBay Asset Management, which was part of the BlackRock group. “It’s an outcome that the government and bondholders can live with.”
Bondholders will still need to vote on the deal, with a danger that some may still decide to veto the recent agreement and scupper the debt workout.
However, one person familiar with the negotiations suggested that scenario was unlikely. Creditor groups that have signed up to the offer represent around 50-60 per cent of eligible bonds, while Argentina already had support of about 30-35 per cent. That is enough support to change the terms of the bonds over the heads of objections by any holdout investors.
Assuming it is passed, the agreement opens up a new chapter in the debt negotiations. Argentina will now enter talks with the IMF, which has lent the country $44bn since a currency crisis in 2018, seeking to delay debt payments coming due in 2021-23, while avoiding harsh austerity measures.
It will also allow the government to focus on fixing the rest of the economy’s problems, which include one of the highest inflation rates in the world, capital controls that have led to a heavily overvalued official exchange rate, and a recession that is now well into its third year.
The Latin American country was already struggling with a deep recession and a huge debt burden when the coronavirus crisis erupted, sending the economy into a tailspin and further complicating the stand-off with bondholders.
“This is a huge relief. It is a necessary condition in order for the economy to be able to grow, even if it is not sufficient,” said Santiago Bulat, a local economist.
Argentina’s bond set to mature in 2028 rose more than 3 per cent on Tuesday to 46 cents on the dollar, while the country’s century bond climbed by roughly the same degree.
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