Argentina Bonds Climb as Investors See Headway in New Offer
Argentina’s new debt offer shortens its payment moratorium to two years and delays principal payments for half a decade.
(Bloomberg) -- Argentina’s dollar bonds climbed to the highest in almost three months after the government released a revised debt restructuring offer in a bid to win creditors’ support.
The country’s $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 government and creditors are inching closer to a deal on $65 billion of overseas bonds after the country tumbled into default on May 22, its third this century. The government’s latest offer proposed a payment moratorium for just two years, instead of three, among other changes that could appeal to investors.
“This revised offer was definitely better than expected, but it won’t be the clearing offer,” said Edwin Gutierrez, the London-based head of emerging-market sovereign debt at Aberdeen Asset Management.
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.
President Alberto Fernandez’s administration entered a new round of talks with its largest creditors on Saturday after missing the final deadline for $500 million of overdue interest payments late last week. The government has extended its deadline for a debt deal until June 2, giving the two sides several more days to reach an accord.
“It is unlikely that an agreement will be reached by the soft date line of June 2, 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.
The government’s new proposal includes a nominal haircut of 7% to the principal on global dollar bonds maturing in 2030 and a 5% reduction for global bonds maturing in 2035 and 2046. No principal would be returned to investors until 2025. There’s no haircut listed for dollar-denominated exchange notes issued after a previous default. The new bonds to come out of the exchange would have coupons that gradually increase as the maturity date approaches.
“Short-end bonds benefit from this offer with a lower nominal haircut,” said Ramiro Blazquez, the head of research and strategy at Banctrust & Co. in Buenos Aires. “This will have a positive impact on short-end valuations.”
Argentina also said it’s open to discussing sweeteners. An earlier proposal by the a committee of creditors known as the Exchange Bondholder Group suggested instruments tied to the nation’s gross domestic product.
The nation’s economy is poised for one of its sharpest declines in living memory in 2020, coming on top of contractions in the past two years. Inflation hovers near 45%, the peso has lost more than half its value in just a few years, and unemployment has worsened since 2018. The government has said it needs $40 billion in debt relief to set the nation back on the path to sustainable growth.
Counteroffer
Earlier Thursday, 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 $36 billion over nine years. The offer would also reduce coupons by an average 32%, and extend maturities with no amortization payments before 2025.
“Our proposal offers the Argentine administration substantial front-loaded cash flow relief, while providing a foundation for the future economic development and prosperity of Argentina and its citizens,” the groups said in a joint statement Friday.
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 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,” Argentina Economy Minister Martin Guzman said. “We hope to continue working with the creditors that make up this group.”
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