Buenos Aires Province reaches debt accord with key holders

Argentina’s Buenos Aires Province and a group of creditors including GoldenTree Asset Management LLC reached an initial agreement to restructure US$7.1 billion of overseas debt, paving the way for the nation’s largest province to emerge from default.

The province’s Economy Ministry said in a statement that it agreed “with its principal creditor and a group of other creditors” on terms and conditions and would formalise a new offer to all its bondholders soon. The province didn’t specify the percentage of creditors that have already accepted the new terms.

The accord marks the first major breakthrough between creditors and the provincial government after almost a year of talks. Negotiations had yielded little progress as the province extended the same debt offer more than a dozen of times.

The province’s bonds due in 2027 gained 3 cents to 48.6 cents on the dollar as of 10.36am in New York, the highest since August.

“With the revised terms and the consent from the supporting creditors, we believe that the new proposal has high success chances,” Juan Manuel Pazos, chief economist at TPCG Valores, wrote in a note to clients. “Even if there was another round of amendments to bring the more litigious-friendly creditors in, we expect them to be minor adjustments from this point on.”

Buenos Aires’ bonds are the country’s largest stock of defaulted debt since the national government restructured US$65 billion last year and after about a dozen provinces struck agreements with creditors, from Jujuy in the north to Chubut in the south. Home to almost 18 million people and accounting for two-fifths of Argentina’s gross domestic product, Buenos Aires’ debt represents around half of the total dollar debt from regional governments.

The invitation will expire on August 13 and the results will be announced three days later, while its settlement is scheduled on August 20.

Province terms

The proposal cuts total payments due by US$4.5 billion through 2024, and includes an average coupon of 5.6 percent, according to the province. The first coupon payment is set in September and the earliest capital payment is in March 2024.

All consenting bondholders will receive 100 percent of interest accrued on existing notes, paid 10 percent in cash at settlement, and 90 percent capitalised into new notes. Creditors of eligible bonds will be entitled to receive either new dollar-denominated 2037 A bonds or new Euro-denominated 2037 A bonds, and those who hold dollar-denominated 2035 bonds and Euro 2035 bonds can receive either new USD 2037 B or new Euro 2037 B notes.

Argentina is in its third year of recession, with inflation above 50 percent and unemployment over 10 percent. The country is also seeking to rework a US$45-billion credit line with the International Monetary Fund.