Bondholders reject Argentina’s debt offer

Argentina’s biggest bondholders have rejected the government’s offer to restructure $83bn of foreign debt, raising the prospect that the country is headed for its ninth sovereign debt default.

In statements released on Monday, three creditor groups rebuffed the terms laid out by the government late last week, which called for interest payments to be delayed until 2023 and principal payments until 2026.

The deal encompassed not only debt issued by the country since 2016, but also previously restructured bonds issued in 2005 and 2010. These so-called “exchange bonds” require a higher percentage of bondholders to accept any changes to the payment terms of the debt, potentially making it more difficult for the government to reach an accord.

“Rather than follow a course of constructive engagement, Argentina has instead chosen to make a unilateral offer,” wrote one creditor group representing holders of these exchange bonds. “Argentina’s proposal does not represent the product of good faith negotiations and the Exchange Bondholder Group considers it to be unacceptable and does not intend to support it.”

The group, which is advised by Dennis Hranitzky at law firm Quinn Emanuel Urquhart & Sullivan and counts hedge funds Monarch Alternative Capital and HBK Capital Management among its members, said it collectively held more than 16 per cent of the exchange bonds issued by Argentina, an amount equivalent to more than $4bn.

Another bondholder group, which is advised by White & Case and includes BlackRock, Fidelity, Ashmore, T Rowe Price and other large institutional investors, also said it could not support the government’s proposal. 

“The group believes that all stakeholders in Argentina will need to contribute to a solution that puts Argentina on a path toward sustainable growth and financial stability,” the creditors said in a statement. “However, the proposals included in the press release fall short of that mark, and seek to place a disproportionate share of Argentina’s longer-term adjustment efforts on the shoulders of international bondholders.”

The group said it collectively held more than 25 per cent of Argentina’s bonds issued since 2016 and more than 15 per cent of the country’s exchange bonds.

A third group, advised by UBS and Mens Sana Advisors, also rejected the terms of the deal, noting in a statement that the offer came “without meaningful discussions”.

Investors were asked to accept a 62 per cent “haircut” on interest payments worth almost $38bn, with the government proposing to pay interest rates of 0.5 per cent initially, before rising to levels of less than 5 per cent. The government also requested a 5.4 per cent reduction in the face value of the debt, worth around $3.6bn.

According to Gordon Bowers, an emerging markets research analyst at Columbia Threadneedle, the average recovery value for the exchange bonds under the government’s proposal hovers around 35 cents on the dollar. With Argentina’s exchange bond set to mature in 2033 trading at 39 cents on the dollar, Mr Bowers said there was “little incentive” for these bondholders to accept the government’s deal. 

Siobhan Morden, head of Latin America fixed income at Amherst Pierpont, said the bonds issued since 2016 had a historically low average recovery value of 32 cents on the dollar — an offer more in line with current market prices.

Martin Guzmán, Argentina’s economy minister, said negotiations with bondholders would last 20 days — a narrow window to agree a mutually satisfactory deal, investors and analysts said. 

“Incremental movement on this proposal is not going to get a deal done,” said a person close to the situation.

While UBS’s creditor committee noted in its statement that a “sustainable solution to Argentina’s debt crisis remains within reach”, it warned the government against asking too much of bondholders to eliminate the country’s longstanding economic imbalances.

“A return to the approach of periodically seeking to externalise adjustment on to foreign bondholders — who essentially represent hard-earned foreign savings — will fail to create a sustainable debt solution for Argentina, as has been demonstrated in the past.”

Letter in response to this article:

Victory for bondholders may come at a price / From Aldo Caliari, Washington, DC, US

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