Any creditors considering holding out for a better deal in a debt restructuring offer from Argentina’s state-owned water utility AySA should probably think again.
An ad hoc group of investors hold enough of the US$500 million of bonds issued by Aguas y Saneamientos Argentinos SA, known as AySA, to force potential holdouts into accepting the deal, according to two people with direct knowledge of the matter.
An accord, known as a preventive extrajudicial agreement, allows the company and its creditors to impose the restructuring terms on holdouts by demonstrating to an Argentine court that it has majority support. The mechanism in this case is an alternative to collective action clauses – the legal language in a bond’s contracts that are designed to maximise participation and discourage holdouts.
Argentina’s battles with holdout creditors in the last decade has made the country a testing ground for novel legal language in debt exchanges.
“We have seen levels of holdouts that have been quite significant in past debt exchanges, which is why we’ve put together this consent solicitation,” said Daniel Marx, founder of Quantum Finanzas consultancy firm in Buenos Aires, which is acting as financial advisor for AySA in the exchange.
The creditor group is comprised of Callaway Capital Management, GoldenTree Asset Management, Moneda SA, Sandglass Capital Advisors, Shiprock Capital Management and VR Advisory Services, and holds 80 percent of AySA’s outstanding 2023 securities, according to a statement published November 19.
Creditors who don’t voluntarily accept the offer and are then dragged into the exchange would receive worse terms than creditors who accepted early, and would take longer to be paid, Marx said.
AySA is offering creditors an exchange of bonds due February 2023 for new notes maturing in 2026 that carry a higher coupon of 7.9 percent, versus 6.625 percent previously. Holders who tender will also receive a cash consideration. AySA’s bonds have soared since it announced the restructuring in November, climbing more than 11 cents to 72 cents on the dollar.
The early deadline for AySA’s exchange is December 8 at 5pm in New York. The offer will expire at 11.59pm on December 19.
by Scott Squires, Bloomberg