Argentina to announce debt restructuring soon

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Asset management Bonds Debt Capital markets Corporate and sovereign strategy Economics and politics Fixed income funds Structured finance Regulation Politics Coronavirus Argentina United States Latin America

Argentina could announce an $ 83 billion currency bond restructuring offer as early as this week as it tries to avoid default, despite shutting down the economy to contain the spread of the coronavirus.

“We will make the offer in the next few days,” President Alberto Fernández said Sunday evening in an interview with local television station Net TV.

The Fernández administration had wanted to restructure its international obligations by March 31, but the spread of the coronavirus delayed negotiations as authorities focused on managing a worsening health crisis. The virus went from a confirmed case in early March to more than 2,200 cases and 97 deaths on Monday, according to data compiled by the Johns Hopkins Coronavirus Resource Center.

Despite the setbacks, the president said talks with bondholders “are going well” and added that he hopes to sign an agreement that will be “something that we can fulfill as a government and as a country. “.

The government did not provide details on what the offer might entail, but Economy Minister Martín Guzmán said he would seek a grace period for interest payments as well as longer maturities, lower coupons and a possible discount. The International Monetary Fund (IMF), Argentina’s largest creditor with a $ 44 million loan, has come out in favor of such an offer, calling on private bondholders to make a “significant contribution “so that Argentina can withdraw in the event of a financial crisis.

“I don’t want to commit to signing something that we can’t fulfill,” Fernández said in the TV interview. “We are going to make an offer that can be maintained over time, an offer that we know we can fulfill, given the situation Argentina will find itself in after the coronavirus.”

The government shut down the economy on March 20 to slow the spread of COVID-19. It has since extended the lockdown until April 26, halting most activities and ordering people to stay home except to buy essentials like food.

When asked if the impact of the foreclosure could mean that bondholders would be asked to agree to deeper cuts, Fernández said: “Yes, we could say it,” but he went on to say that this could also mean longer maturities.

The economy, already in its third year of recession, is expected to shrink by 5.2% this year, according to World Bank projections released on Sunday. Most economists expected a 1% drop ahead of the coronavirus outbreak.

While foreign currency bonds will be restructured, Fernández said the government will not renegotiate its peso-denominated notes in the local market. “We are going to pay off the debt in pesos because it is with people who trust the Argentinian currency,” he said.

The big question, however, is whether the holders of the foreign currency bonds will accept the offer. Goldman Sachs said that “the chances of an amicable resolution of Argentina’s debt situation have dramatically diminished” due to the coronavirus crisis. In a note to clients, economists at the US investment bank warned that handling the outbreak would not only slow the economy, but also place a heavy burden on Argentina’s fiscal accounts, which will reduce “The present present value of expected budgetary cash flows supporting any restructuring proposal”.

What’s more, some investors “may be reluctant to accept large losses (especially reductions in the face value of principal and coupons) without a commensurate ‘tax sacrifice’ on the part of the government,” Goldman Sachs said.

He added that the global reach of the COVID-19 crisis means that bondholders face many challenges for their “focus and interest” that “create new obstacles to a smooth and swift negotiating process.”


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