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ECONOMY | 18-06-2020 01:21

Debt talks with creditors stall amid growing animosity

Ad Hoc Bondholder Group, one of several that have been most active in the talks, slammed Argentina for rejecting what it called a “sustainable and sensible solution.”

Talks to pull Argentina out of default stalled Wednesday amid growing animosity between government officials and some of the country’s top creditors.

Officials and creditors failed to find common ground after two bondholder groups submitted an offer earlier this week, according to people familiar with the matter. Argentina and the Ad Hoc Bondholder Group published statements late Wednesday that pointed to the increasing tension between the parts, with creditors calling the talks a “failure.”

The lack of a deal with top bondholders suggests around US$65 billion in bonds could languish in default for the foreseeable future. Argentina has set a deadline of June 19 on its latest proposal after extending it four times, but the deadline doesn’t have tangible impact since the country tumbled into default on May 22 after missing overdue interest payments.

Neither side budged in talks Wednesday, said the people, who asked not to be named because the talks are private. The two sides agreed to continue without renewing confidentiality agreements that bar investors involved in the talks from trading the country’s bonds during the negotiations.

The Ad Hoc Bondholder Group, one of several that have been most active in the talks, slammed Argentina for rejecting what it called a “sustainable and sensible solution.”

The group, which includes investor heavyweights BlackRock Inc and Ashmore Group Plc, said its latest proposal would have provided Argentina with ample fiscal space to handle the country’s economic challenges, including US$38 billion of cash flow relief over nine years. It also included the group’s toughest language yet.

“Given the failure of the bondholder negotiations, our group is now considering all available rights and remedies in our capacity as fiduciaries to the millions of savers we serve around the world,” according to the statement.

That evening, President Alberto Fernández recalled in a televised interview that the restructuring talks after the country’s 2001 default took over a year.

“I don’t understand what the rush is on the deal,” he said, adding that he would continue to discuss the matters with Economy Minister Martín Guzmán later in the evening.

As tensions mount, the government is considering all possible options, including asking the International Monetary Fund for a new programme sooner than they’d previously planned, according to one of the people, with Fernández and Guzmán reviewing next steps. Previously, the government had said it would seek a new IMF programme after creditor talks were finalised. An Economy Ministry spokesman didn’t immediately reply to a comment request.

Tough language

Argentina said in its own statement sent Wednesday evening that the negotiating process had shown divergences between the main bondholder groups that could not be reconciled. The country added that it’s seeking all options to restore economic stability, but that the creditors proposed revisions “that Argentina cannot responsibly commit to, some of which are largely inconsistent with the debt sustainability,” it added.

Argentina’s new proposal would begin coupon payments of 0.125 percent as soon as next year, according to its latest plan, also published Wednesday. The proposal also reduced the nominal haircut on some bonds to three percent, and did not include a nominal haircut on Par and Discount bonds issued in the country’s previous debt restructurings. The country would not begin paying back the new bonds’ principal until 2025, unchanged from its previous plan.

The country is proposing a “sweetener,” also known as a value recovery instrument, based on exported goods that would pay an annual extra coupon of up to 0.75 percent from 2026 to 2046, when payment conditions are met. The country is proposing using export data from country’s tax agency AFIP, and would include a floor value known as a “backstop floor.”

Creditor proposals

The Ad Hoc group, alongside the Exchange Bondholder group, submitted a joint proposal that includes its own sweetener tied to Argentina’s gross domestic product for creditors who accept the new 2036, 2038 and 2045 dollar and euro-denominated bonds. The nominal GDP to be used would be the one published by the International Monetary Fund as part of an annual Article IV, they suggested.

That proposal also calls for half of the accumulating interest to be paid in cash on the settlement date, and the other half to be paid through a new dollar bond maturing 2023 for accrued interest, that would start making payouts in January 2021 at a four percent rate.

The Argentina Creditor Committee, Gramercy Funds Management and Fintech Advisory Inc, submitted their own proposal, which would deliver $40 billion in debt relief to Argentina until 2028 and would include the same exit bonds suggested in the country’s revised proposal, according to documents published by the government.

The proposal would also include a one percent haircut on Argentina’s global bonds, and would include a export-linked sweetener that would pay out to creditors between 2024 and 2043. Under that plan, no debt would mature under the current presidential mandate and no bond would pay a coupon above five percent.

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by Jorgelina do Rosario, Scott Squires & Patrick Gillespie, Bloomberg


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