Argentina's debt restructuring talks heated up on Thursday as the government improved its offer and rejected a counter-proposal from two groups of creditors.
In response, the country’s dollar bonds climbed to their highest in almost three months on Friday. US$1 billion of notes due in July 2028 jumped to 35.9 cents on the dollar, the highest since early March. Other Argentine securities rallied as well.
The gains reflect optimism that the President Alberto Fernández’s government and its creditors are inching closer to a deal to restructure more than US$65 billion of overseas bonds after the country tumbled into default on May 22, its third this century.
“This revised offer was definitely better than expected, but it won’t be the clearing offer,” Edwin Gutierrez, head of emerging-market sovereign debt at Aberdeen Asset Management, told Bloomberg.
The Economy Ministry published details of its new offer to bondholders, saying it would trim a proposed three-year grace period on payments to two years and delay principal payments until May 2025.
William Snead, an analyst at BBVA SA in New York, said bondholders will likely look for “further sweeteners” before agreeing to a final deal. Still, he says the better terms of the new proposal are propping up bond prices.
The government has extended its deadline for a debt deal until June 2, hoping to reach an accord with its creditors.
“It is unlikely that an agreement will be reached by the soft date line, but the door remains open for further negotiations,“ Snead said.
Morgan Stanley expects a deal in the third quarter that would value the bonds at 45 to 50 cents on the dollar. Noticias reported Friday that the two sides were 14 points apart, with creditors seeking 59 cents on the dollar and the government offering 45 – more than its original offer of 32. Others told the magazine the distance was down to 10.
Speaking earlier in the day to international news agencies, Economy Minister Martín Guzmán said that talks were ongoing but that a deal wasn’t imminent.
"There is a concrete negotiation, under a confidentiality agreement. But the reality is that there is an important way to go," the minister said in a meeting with international press agencies.
Negotiations have already been extended twice and there could still be a further extension.
The deadline was established "so that negotiations can continue," said Guzmán, noting that "from the moment the offer is amended, there must be 10 more days until the closing date is reached."
Earlier on Thursday night, two of the nation’s largest bondholder groups submitted a joint proposal that they said would provide the country with front-loaded cash flow relief in excess of US$36 billion over nine years.
The Ad Hoc Bondholder Group, represented by White & Case LLP, features BlackRock Inc., Ashmore Group Plc and Fidelity Investments. The Exchange Bondholder Group includes Monarch Alternative Capital LP, HBK Capital Management and VR Capital Group Ltd. Notably missing from their offer was a third group of investors called the Argentina Creditor Committee.
The groups said in a statement on Friday that their joint debt proposal included coupon reductions averaging 32 percent and no amortisation payments until 2025. The new proposed average coupon rate was 4.25 percent, it added.
The government rejected the offer, with Guzmán branding it “insufficient.”
“The group of Ad Hoc creditors moved in the right direction with respect to its previous offer, but the move was short and insufficient for the needs of the country,” he said. “We hope to continue working with the creditors that make up this group.”
The government said in its own new proposal that there’s a nominal haircut of seven percent on new global dollar bonds maturing in 2030, with five percent for global bonds maturing in 2035 and 2046. There’s no haircut listed for dollar-denominated exchange notes held under the 2005 indenture. The new bonds would be issued under the 2016 indenture and have step-up coupons that gradually increase as the maturity date approaches.
Argentina also said it’s open to discuss value recovery mechanisms. An earlier proposal by the Exchange Bondholder Group suggested instruments tied to the nation’s gross domestic product.
“The joint proposal has been specifically designed in good faith to meet the macro-fiscal objectives expressed by the government, and represents a considered and responsible initiative by international asset managers who have invested in Argentina on behalf of millions of savers around the world,” the Ad Hoc Bondholder Group said in a statement.
‘A universe of creditors’
Guzmán said talks had been complicated by the different profile of bondholders, saying Argentina faced “a universe of creditors who are very different, who have different holdings and therefore have different preferences on how to resolve this."
The exchange includes bonds issued in 2005 and 2010, which included restructured debt dating back to the 2001 default, as well as bonds issued in 2016 under the Mauricio Macri Presidency. The country has been in recession since 2018, with inflation ’s total debt stands at around US$324 billion, almost 90 percent of GDP.
"Part of what is needed when amending an offer is to try to make these differences between creditors as compatible as possible," Guzmán insisted.
Argentina has a total debt burden of around US$324 billion, almost 90 percent of GDP. Gripped by recession for two years, both inflation and poverty are on the rise and the economy is expected to contract by more than seven percent this year, due in large part to the coronavirus pandemic.
"The sooner this problem is resolved, the better for all parties. The issue is that it has to be solved well. Argentina is only going to make a commitment that it can fulfill," Guzmán told reporters Thursday.
The government has repeatedly said it wants to pay but that it lacks the means to do so, saying any deal must be “sustainable.”
Argentina’s original offer included a three-year grace period, a 62 percent reduction in interest and a 5.4 percent reduction in principal.
Earlier this week, Nobel-Prize winning economist Joseph Stiglitz – who worked with Guzmán at Columbia University – said creditors had to understand that Argentina’s situation was even more drastic given the coronavirus pandemic.
“In the context of the pandemic, it is both short-sighted and inhumane for creditors to play the usual games in which they try to pry as much as they can from hapless debtors,” he wrote in a Project Syndicate column.