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ECONOMY | 10-03-2020 08:15

Government proposes US$69-billion debt restructuring plan

With Decree 250/2020, government confirms proposal to restructure US$69 billion of public debt.

Argentina has finalised a proposal to restructure some US$69 billion of the country's massive public debt, the government said Tuesday, hoping to delay the maturity of some institutional loans and reduce the amount owed to private creditors.

It's the first time that President Alberto Fernández's government has explicitly declared the nominal value of the debt held by foreign bondholders that he plans to restructure.

"In order to resolve the situation of macroeconomic inconsistency, it is essential to implement debt policies as part of a comprehensive program designed with the objective of recovering a sustainable growth of the economy and restoring the sustainability of public debt," read a decree signed by the president, Cabinet Chief Santiago Cafiero, and Economy Minister Martín Guzmán.

The decree, published at midnight, came just hours after Argentine bonds sank to record lows in the midst of falling oil prices and fears of the coronavirus. Argentine 100-year bonds maturing in 2117, which the government included in the decree, fell almost 10 percent on Monday to 35.4 cents. The spread in yields between Argentine bonds and US Treasury bonds, a measure of country risk, expanded 380 basis points to 2,789 units.

The government included all the bonds it intends to restructure in the decree, though it did not detail the amount of each one. The decree illustrates the complexity of Argentina's restructuring: there are bonds issued in four different foreign currencies, not including its debt in pesos of local law.

Guzmán met with some major investors last week, including BlackRock Inc. and Pacific Investment Management Co., but has not detailed its offer or debt strategy, leaving everyone in the dark.

Most international bonds have been issued under New York law and have collective action clauses (CAC). Some investors prefer New York law bonds because their CACs require that a specific percentage of investors accept changes in the terms of the payments, while notes issued under Argentine law do not have such clauses.

Argentine bonds at nominal and discounted value, which were already restructured during the nation's debt exchanges in 2005 and 2010 with creditors, are among the bonds that the government intends to negotiate.

The list does not include titles linked to GDP, which are securities that require payment when Argentina achieves annual economic growth of three percent.

Growth before payment

Since taking office in December, the Fernandez administration has insisted it will not be able to pay off its creditors if its recession-hit economy fails to resume growth.

Analysts previously considered that the chances of success of restructuring the debt depends in part on the amount or percentage of creditors that the government brings to the table that adhere to the proposal.

According to government data, at the end of last December, Argentina's gross debt amounted to US$323 billion, of which about US$194 billion corresponds to debt in medium and long-term public bonds. 

Some US$44 billion corresponds to debt that was contracted with the International Monetary Fund (IMF), which expressed its support for Argentina's debt restructuring plans on the grounds that the debt "is not sustainable" and that an adjustment plan "is not economically or politically feasible" given the country has been in recession foralmost two years.

Fernández told Congress recently that the initiative "will not be done at the expense of the people's hunger,” and said the country will pay when its economy "grows again."

Argentina is struggling with inflation of more than 50 percent, a major currency depreciation and a poverty level that has soared almost to almost half the population after nearly two years of economic downturn.

In 2001 Argentina defaulted on payments on nearly US$100 billion of its external debt, but has since paid some back in the form of large swaps. 

Now the government wants to delay the maturity on some loans and work with private creditors to reduce overall debt.

Last week the government said it had recruited HSBC, Lazard and Bank of America to help with the restructuring. 

Argentina currently owes US$311 billion – more than 90 percent of the country's GDP – with more than US$30 billion in repayments due before the end of March. 

That includes a deeply unpopular US$57 billion bailout loan from the International Monetary Fund, of which US$44 billion has been delivered to date, which was negotiated by Fernández's predecessor, Mauricio Macri, in 2018.


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