A proposal by Argentina’s largest province to restructure US$7 billion of international debt drew immediate criticism from analysts, who called its terms ill-conceived and unworkable.
Compared with a national plan that was also roundly panned, the Buenos Aires Province government's offer is “a more egregious unwillingness to pay for a credit that cannot convincingly argue that it needs substantial debt relief from bondholders.” said Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpont Securities. “The province’s offer was completely opportunistic, and will be promptly rejected.”
The proposal, released late Thursday, asked investors for a three-year payment moratorium and a steep cut to interest rates. It asked bondholders to swap 11 bonds for four dollar and euro bonds maturing in 2032 and 2040. The first coupon payment is March 2023. While the new bonds pay amortising principal payments, no principal will be returned before 2026.
“If the experience of the federal government is of any guidance, the odds that a large share of investors reject the initial offer is meaningful,” wrote Alberto Ramos, head of Latin American economics at Goldman Sachs Group Inc. “The long grace period, low coupons, and deferred payment schedule of the new bonds are unlikely to persuade many bondholders.”
The provincial government proposed to start paying 1.97 percent coupons in 2023 that will increase over time. Once the coupons reach their caps, the average interest will be 4.56 percent for dollar-denominated bonds and 2.94 percent for euro bonds, an offer that would lead to savings of 55 percent in coupon payments from 2020-2027.
In what seems a coordinated strategy with the national government, the province will use a 30-day grace period during debt talks for an unpaid coupon on April 18 of a New York law bond due 2028, according to people with direct knowledge of the matter. The bond is among those that are part of a province restructuring offer.
It’s not the first time Governor Axel Kicillof has used a bond’s grace period. The province entered a payment grace period while negotiating with creditors for a three-month delay on a 2021 bond payment originally due in January. Fidelity, one of the bond’s largest holders was able to block the proposal, and in the end, the province agreed to pay US$250 million.