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ECONOMY | 20-07-2020 21:54

Creditors join forces to demand better terms on debt deal

Three largest creditor groups join forces in negotiations, rejecting government's "final" offer and submitting their own counter proposal.

Argentina’s three largest creditor groups joined forces to submit a new bond restructuring proposal that would provide the country more than US$35 billion in debt relief over the next nine years.

The Ad Hoc group, the Exchange Bondholder group and the Argentina Creditor Committee, which represent investors including BlackRock Inc and Ashmore Group PLC, said that they had agreed to form a negotiating bloc and reject the government’s latest offer.

The statement from the creditor groups suggests they’ll act as a united front in negotiations over US$65 billion of defaulted overseas bonds, but the move may also pave the way for a deal by allowing government officials to work with just one entity that holds a sizeable chunk of its debt.

“We are confident that a consensual resolution is in sight and that such an agreement will provide a path towards a sustainable economic future for Argentina’s people,” the groups said in the statement.

President Alberto Fernández, speaking in an interview on TV Pública after the groups’ statement was released, reiterated that the country’s most recent offer was its best and final proposal.

“We want to act in good faith and find a solution,” Fernandez said. “We’ll continue discussing, but the truth is that we’ve made the offer that is possible.”

Economy Minister Martín Guzmán said in a statement late Monday that the creditor groups misunderstand the country’s restrictions and to accept what some Argentine creditors are asking would require unacceptable adjustments that would hurt citizens, such as lower pension payments.

“We aren’t going to do that,” Guzmán said. “We expect that a majority of bondholders will accept the offer.”

‘Significant concessions’

Creditors said the new proposal represents “significant economic and legal concessions from all three groups.”

They’re proposing cash-flow relief in excess of US$35 billion over a period of nine years using the same 10 bonds in Argentina’s latest amended exchange offer, according to a document seen by Bloomberg.

Principal payments on those bonds would begin in 2025. Most bonds wouldn’t be subject to any haircut to the principal, though new dollar- and euro-denominated notes maturing in 2030, 2035 and 2046 would see a three percent write-down, the document said.

The proposal suggests an average coupon rate of 3.4 percent. Argentina would begin paying interest in July 2021.

The bonds would begin accruing interest on September 4 2020, and Argentina’s past-due interest would be paid via securities maturing in 2030. In another concession, creditors agreed that the new bonds issued in exchange for existing global notes will be governed by an amended version of the 2016 indenture.

Economic contraction

The government’s latest plan had been valued at about 53 cents on the dollar, while past proposals from some creditor groups were closer to 56 cents.

Fernández has said that the government’s current offer is the most that Argentina can do after the country defaulted in May. The economy is poised for its third straight annual contraction, and the peso has lost more than half its value over the past two years.

It isn’t clear exactly how much debt the united creditor groups have. But the bloc said today that its members collectively hold more than a third of Argentina’s outstanding Global bonds and more than a third of its outstanding Exchange bonds.

The groups’ unification is an encouraging sign that a deal may be within reach, but it also suggests that there won’t be any overarching agreement without the support of this new bloc, according to Siobhan Morden, the head of Latin American fixed income at Amherst Pierpont Securities.

“It’s important that the bondholders continue to show goodwill to negotiate and propose alternatives that will engage Argentina,” Morden said. “Fernandez continues to insist that he has no more debt repayment capacity, but there is always wiggle room over a 20-year repayment horizon.”

The country’s US$6.5 billion of overseas notes due in 2026 were little changed after the announcement, slipping less than half a cent on the day to 40.7 cents on the dollar. The bonds have traded flat since the May 22 default, according to a recommendation from the Emerging Markets Traders Association.

by Scott Squires & Jorgelina do Rosario, Bloomberg

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