Argentina and its biggest creditors have begun ironing out possible revisions to the country’s US$65-billion debt restructuring proposal before crucial bond payments come due later this month.
While both sides are pessimistic about reaching an agreement before Friday’s proposed deadline, behind closed doors they’re suggesting possible revisions to garner additional support if talks continue past it, according to people with direct knowledge of the matter, who requested anonymity because the talks are private.
Officials have shown some willingness to improve the terms of the exchange, and the bondholders have pared some of their initial expectations, the people said. The key changes under discussion include reducing the grace period to less than three years, increasing the coupon on new bonds and adding a potential contingent instrument that offers upside payments to investors based on economic improvements, they added.
There’s an urgency to make headway on those details before May 22, when a 30-day grace period for coupon payments on dollar bonds maturing in 2021, 2026 and 2046 expires. The stance contrasts with both parties’ public statements, where they have traded barbs over the last week.
Economy Minister Martín Guzmán has said publicly that the country’s offer won’t be improved, yet earlier this week his office invited creditors to come forward with a specific proposal. On Monday, the three main bondholder groups called out Argentina’s offer, saying it forces investors to “bear disproportionate losses.”
The tension between Argentine officials and creditors brings back memories of the nation’s 15-year legal battle with bondholders that ended in 2016. Since returning to markets, the nation has fallen back into despair, tumbling toward three consecutive years of economic contraction. The pandemic has only added to the turmoil amid bond sell-offs, a currency crisis and double-digit inflation.
A press official said the government is focused on reaching as many agreements as possible before the Friday deadline and will consider its options after that date.
Among the options under discussion after May 8 is some kind of sweetener or contingency instrument, the people said. The government issued so-called GDP warrants during its 2005 and 2010 restructurings. The instruments, which trigger payouts when the economy expands by more than three percent, paid out in six of their first seven years.
The warrants also added to the nation’s legal woes. Several hedge funds, including New York-based Aurelius Capital Management LP, sued the government last year, claiming a change in GDP calculations under Cristina Fernández de Kirchner’s presidency prevented them from cashing in on a payout in 2013.
To avoid another legal mess, creditors have suggested relying on statistics compiled by a third-party such as the World Bank or International Monetary Fund, rather than data from the Argentine government, the people said.
One area of ongoing friction is over the interest accrued on unpaid debt during the standstill period. Bondholders are suggesting it could get paid out in cash or added to the principal amount on their claims, while Argentine officials are concerned that altering those terms wouldn’t comply with the IMF’s debt sustainability analysis, according to the people.
The government is being advised by Bank of America Corp., HSBC Holdings Plc, and Lazard Ltd.
by Ben Bartenstein, Ignacio Olivera Doll & Pablo González, Bloomberg