ADVERTISEMENT

Argentina Bonds Fall to a Three-Week Low After Debt Talks Stall

Argentina Debt Negotiations Stall Amid Growing Animosity

Argentina’s dollar-denominated bonds slipped to their lowest level in three weeks after restructuring talks stalled amid growing animosity between officials and some of the country’s top creditors

The bonds, which had rallied over the past month on optimism creditors and the government were nearing a deal, fell after the two sides said they were at an impasse. Dollar bonds due 2026 dropped 2 cents to 37.7 cents on the dollar as of 8:49 am New York time, their lowest level since May 28.

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 suggests around $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 a 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 negotiations 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 discussions.

Argentina Bonds Fall to a Three-Week Low After Debt Talks Stall

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 $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 Fernandez 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 Martin Guzman later in the evening.

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

Tough Language

Argentina said in its own statement sent Wednesday 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 Argentina cannot responsibly commit to” the creditors proposed revisions, “some of which are largely inconsistent with the debt sustainability.”

Argentina’s new proposal would begin coupon payments of 0.125% as soon as next year, according to its latest plan, also published Wednesday. The proposal reduced the nominal haircut on some bonds to 3%, 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% 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 4% 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 1% 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 5%.

©2020 Bloomberg L.P.