Argentina reached ‘an understanding’ with one creditor group, says Guzmán

Argentina reached an understanding – but not an agreement – with one group of creditors to restructure US$65 billion in overseas debt while major differences remain with another key group, Economy Minister Martín Guzmán said Thursday.

“We’re in conversations with two major groups. With one of them we have managed to reach an understanding on a number of important issues,” Guzmán told Bloomberg’s Stephanie Flanders at the Emerging & Frontier Forum 2020. “With the other group, it’s called the Ad Hoc Group, there have been bigger differences.”

Guzmán did not say Argentina had reached a formal agreement with any creditor groups.

The contrast in bondholders’ positions shows the complexity of Argentina’s debt negotiations, which stalled last week after failing to reach a deal after successive deadline extensions. The government has now extended talks until July 24.

Creditors say Argentina rejected what they consider sustainable offers. In turn, Guzmán said the Ad Hoc bondholders, which include BlackRock Inc, sought changes to the collective action clauses, known as CACs, in the contracts of new bonds the country would sell that weren’t fair in the government’s view.

“One of the proposals we received asked Argentina to go back in time and undo the progress that has been done over the last few years,” Guzmán said, referring to enhanced CACs.

Collective action clauses set a threshold for creditors to accept an agreement from a debtor. If a certain percentage of bondholders accept the offer, then all must accept it.

Securities issued under the 2005 bond contracts require at least 85 percent of bondholders to sign off on any new restructuring, versus the two-thirds or 75 percent threshold on securities issued more recently, making them more appealing to some bondholders.

Guzman added Thursday that Argentina’s fiscal deficit is contained despite a major plunge in tax revenue and, conversely, a significant increase in government spending. With no access to credit, the government has turned to Argentina’s central bank to finance its fiscal stimulus, a move that raised concerns about a potential jump in inflation later this year. So far, inflation remains low with millions of Argentines still under quarantine.

“We are making sure the fiscal deficit stays under control, especially given the circumstances we face,” Guzmán said. “We managed to contain the effects of the increases in central bank financing.”