Provinces gear up for debt battles after first 'selective default'

A growing number of provinces in Argentina are hiring advisers and weighing options for their foreign debt loads as the national government advances its own talks to restructure US$65 billion.

Half-a-dozen regional governments are taking their own steps as Argentina negotiates with holders of its overseas debt ahead of a May 22 deadline. For the provinces, which hold US$15 billion in debt and rely on disbursements from the central government, the fate of the national talks are key. Any failure to reach an accord could complicate their standing with creditors.

The path may not be easy. Buenos Aires Province, the country’s most populous and the first one to propose its own swap over US$7 billion of debt, was cut to selective default by S&P Global Ratings on Friday after it missed a bond payment.

“All Argentine provinces are in a fairly weak credit situation,” said Ursula Cassinerio, an analyst at Moody’s Investors Service. “We see a fairly high probability of default and a low probability of recovery of between 35 percent and 65 percent, if there is an exchange, a restructuring, or if there is a default.”

At least two regional governments have already decided to begin the restructuring and another four are considering embarking on similar processes.

Here’s the breakdown:

Mendoza
Mendoza, best known as a producer of Malbec wine, has already publicly said it will seek to refinance 5.2 billion pesos of bonds due 2021 and US$500 million of notes due 2024. The regional government also plans to miss a US$25-million coupon payment due May 19 and to use the grace period to submit its refinancing proposal to creditors, a person with direct knowledge said. The province hired Credit Suisse Group AG and AdCap Securities Ltd late last week to do so.

Salta
The north-western province of Salta is also planning to restructure around US$393 million in bonds. Local officials are wary of dollar bond coupon payments coming up on June 16 and July 7 and have started early discussions with its financial agent, Banco Macro SA, said a person with direct knowledge of the matter.

Río Negro
Authorities in the Patagonian province of Río Negro are weighing their ability to make payments due between June and December 2020, according to a person with direct knowledge of the matter. The regional government hasn’t yet decided if they’ll push out maturities or offer a restructuring, but has started talks with advisory firm Quantum Finanzas SA, run by Argentina’s former debt secretary Daniel Marx.

Córdoba
Córdoba, which has US$1.7 billion in international bonds due in 2021, 2024 and 2027, has hired JPMorgan Chase & Co and HSBC Holdings Plc and law firm Shearman & Sterling LLP ahead of an offer to creditors, people said. With the province’s tax collection in freefall, officials are waiting for it to find a floor and for sovereign negotiations to be over before they offer a deal, the people said. The regional government is already in early talks with some of its largest bondholders.

Neuquén
Neuquén, home to the Vaca Muerta shale formation and which has oil-backed securities, is in talks with Citigroup Inc and its longtime adviser, Quantum Finanzas, with the aim of refinancing its debt amid a drop in royalties. The province has about $100 million in upcoming maturities this year.

La Rioja
La Rioja is in the process of finding a financial adviser to assist in exploring the best alternatives available relating to the province’s debt profile, according to a March filing made by the regional government with the Luxembourg stock exchange.

Chubut
Even before the coronavirus pandemic, Chubut was preparing to renegotiate its debt. The province hired UBS Group AG for a possible market transaction. Out of Chubut’s US$855-million total debt, around 80 percent is held in international bonds, according to a presentation made by the local government in January.