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ECONOMY | 03-07-2020 03:47

Two creditor groups mull 'lock-up' to oppose government's offer

The Ad Hoc and Exchange Bondholder groups are closely watching to see if the government submits an offer that it has discussed with a third creditor group – the Argentina Creditor Committee – and would reject it.

A group of top bondholders would reject an attempt by the government to move forward with a debt restructuring deal that it has been negotiating with another set of creditors, according to people familiar with the talks.

The Ad Hoc and Exchange Bondholder groups, which include BlackRock Inc., Ashmore Group Plc. and Monarch Alternative Capital LP, are closely watching to see if the government submits an offer that it has discussed with a third creditor group – the Argentina Creditor Committee – and would reject it, said the people, who asked not to be named because the talks are private. A so-called "lock-up" agreement is being discussed by the two groups, which would bind their members to reject that offer, some of the people said.

The government's debt talks have broken down in recent weeks with little progress in agreeing how to restructure some US$65 billion in bonds. Argentina, which entered the ninth default of its history in May, has repeatedly extended the deadline to reach a deal and has now set July 24 as the next key date. Without the support of these two key groups, any restructuring would likely leave a large amount of holdouts and increase the risk of litigation.

The Argentina Creditor Committee, or ACC, submitted a revised debt proposal on Thursday to government officials that would provide US$40 billion in debt relief over the next 10 years, according to a person with knowledge of the plan. If the next Argentine proposal is the one submitted by the ACC, the Ad Hoc group wouldn’t support it, according to people familiar with their thinking.

The ACC counterproposal suggests that bond payments begin July 2021, and that bonds are paid out in January and July instead of May and November, according to a document obtained by Bloomberg News. The document also proposes keeping the bond terms from 2005 only for holders of bonds issued in the country’s previous exchanges, a point that the Ad Hoc and Exchange groups have opposed.

The two large creditor groups have publicly said that they hold approximately US$21 billion of Argentine bonds, including 32% of bonds issued after the 2005 debt exchange. The ACC hasn’t publicly disclosed how much it holds in Argentine bonds. Securities issued under the 2005 bond contracts require sign-off from at least 85% of bondholders in a restructuring to avoid holdouts, versus the two-thirds or 75 percent threshold on securities issued more recently.

Economy Minister Martín Guzmán said in an online event on June 25 that he was making progress with the Argentina Creditor Committee, or ACC, and that he remains open to discussions with the Ad Hoc group.

The Ad Hoc and Exchange bondholder groups on Tuesday said that they have had no meaningful discussions with Argentine authorities since June 17.

Representatives from the Ad Hoc and the Exchange Bondholder groups declined to comment. A spokesman from the Economy Ministry declined to comment.

The risk of disgruntled creditors seeking full and immediate payment in a process known as acceleration could rise if the government decides to move forward with an offer negotiated with only a fraction of its investor base, one of the people said.

Argentina is looking to present its final offer by July 24, according to a statement sent on behalf of the government Wednesday evening. The government added that it had found that creditors’ written proposals did not reflect verbal agreements made during the talks, and because of that it had chosen not to renew confidentiality agreements upon their expiration.

by Jorgelina do Rosario & Michael O'Boyle, Bloomberg

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