Argentina’s debt restructuring talks with foreign creditors are bogging down two months after they began, and one Wall Street firm – BlackRock Inc – is a big part of the reason why.
Representatives for the world’s biggest asset management firm have taken a hard line in negotiations, demanding the government drastically improve the terms of its original offer, which sought to saddle creditors with losses of almost 70 percent on US$65 billion worth of bonds.
The stand-off turned so acrimonious that Gerardo Rodríguez, BlackRock’s point person in the talks, and Martín Guzmán, Argentina’s Economy Minister, have gotten into several heated exchanges over the phone, according to people on those calls who asked not to be identified discussing private conversations.
The back-and-forth has even begun to unnerve some of BlackRock’s fellow creditors, who worry that the aggressive approach risks delaying a deal.
Argentina could officially fall into default on May 22, when US$500 million of interest payments come due, and fund managers want to at least be able to report some progress on talks when that happens.
Some of them are discussing a counter-offer to Argentina’s proposal in which they’d accept losses – on what’s called a net-present value basis – of around 50 percent, the people said. That’s a lot more than the roughly 40 percent loss that BlackRock is floating in private conversations, they said.
Rodríguez didn’t respond to requests for comment on the negotiations. Barbara Williams, a spokeswoman at BlackRock, declined to comment.
Signs of progress
It’s not that there have been no signs of progress, of course. As recently as last week, the two sides had been discussing the possibility of making some tweaks to the government’s offer – like reducing the grace period and increasing the interest rates – before talks broke down.
“Having a fully closed deal by May 22 seems very difficult – almost impossible I would say,” said Alejo Costa, chief Argentina strategist for BTG Pactual in Buenos Aires.
BlackRock is something of an unlikely protagonist in this saga. The firm became a Wall Street titan over the past two decades through its dominance in passive investing, a slow-and-steady fee-based business where taking such high-profile public stances is unusual.
But through investments made by those passive funds, BlackRock became one of the single biggest Argentine creditors, holding bonds with a market value of some US$1.7 billion, according to data compiled by Bloomberg. And in Rodríguez, a former top Mexican Finance Ministry official who joined BlackRock in 2013, the firm has a savvy and aggressive executive with years of experience in Latin American debt markets to head its negotiating team.
The Argentines are famously hard-nosed negotiators too, having stuck creditors with losses of about 70 percent in a restructuring in 2005 and then waged a legal battle for over a decade with the hedge-fund billionaire Paul Singer and other holdout creditors.
President Alberto Fernández is now seeking $40 billion in debt relief, saying Argentina can’t pay in full as its budget deficit and inflation soar and the Covid-19 pandemic deepens a recession that began two years ago.
In one particularly tense exchange last month, Guzmán reiterated on a conference call with creditors that the government wouldn’t budge from its debt sustainability analysis and Rodríguez told him that bondholders could outlast him in the stand-off, according to people who took part in the call.
A spokesman at the Economy Ministry didn’t respond to a request for comment.
That same week a BlackRock-led group – which includes Ashmore Group Plc, Fidelity Investments and T Rowe Price Group Inc – submitted the lone counter-offer to Argentina. The plan riled up officials in Buenos Aires who said it didn’t account for the financial pain caused by the pandemic. Then the Economy Ministry published it, angering creditors who felt the government was trying to push a narrative about greedy investors out of touch with the nation’s suffering.
All of this may not exactly constitute a sequel to the epic Singer-versus-Argentina feud, but for those creditors hoping for a relatively speedy renegotiation, they are troubling developments.
The BlackRock-led plan called for US$47 billion in cash flow relief over eight years yet didn’t reduce interest rates and demanded some interest payments during the first year. Guzmán dismissed the proposal on a call with Columbia University professor Jeffrey Sachs last week.
“Somebody should come back with something that’s sensible,” said Sachs, who helped advise Guzmán on his offer. “If instead, we just get so-called ‘hardball,’ I’m sorry for the creditors but you’ll face a colossal collision with reality.”
For now, at least, the market consensus is that Sachs is right, that the creditor groups are going to come out on the losing end. Argentina’s benchmark bonds currently trade at around 30 cents on the dollar, implying a writedown in line with Guzmán’s original, and so far only, proposal.
by Ben Bartenstein, Bloomberg