07/24/2021 12:00 AM
Updated 07/24/2021 12:00 AM
The Province of Buenos Aires this week published the details of its new Exchange Offer and with it came the news that a major creditor had accepted the terms and conditions proposed by the government.
GoldenTree Asset Management, the largest creditor of provincial debt in default, and the same Province announced early on Wednesday that they
had reached an agreement
on the terms of a restructuring that, once implemented, will grant the largest Argentine district a relief of 4.45 billion dollars through 2024. It took fourteen months and two official exchange offers for Kicillof to finally reach an agreement with a major creditor.
the bonds in dollars and in euros issued by the province rose as
much as 5 points at the open and were traded at their highest level in ten months.
However, in the afternoon, the province's Ad Hoc Group ("AHG") of bond creditors, which say they represent 40% of all outstanding provincial bonds, issued a statement saying it
did not support the latest provincial proposal
. “The Province chose an unfortunate path towards launching its offering that involved bilateral discussions with certain bondholders. The Province refused on multiple occasions to enter into direct negotiations with the AHG, despite its repeated invitations to enter into confidentiality agreements aimed at facilitating dialogue, ”the creditors explained in a statement.
Anyway, this is the first time since April 2020 that we have an offer with which the Province and a creditor agree,
offering the market a very good reference
that shows how far PBA is willing to go to restructure its debt. .
To this day, all we had was a series of unofficial exchanges between the provincial representatives and the AHG.
But nothing official.
So how far is Governor Axel Kicillof willing to go?
First, Buenos Aires has offered to
reduce the total number of bonds from eleven to just four, all maturing in 2037
. All holders of Eligible Bonds (except holders of 2035 Bonds denominated in dollars and in euros) will be entitled to receive “New 2037 A Bonds” denominated in dollars or “New 2037 A Bonds” denominated in euros. Holders of 2035 Bonds denominated in dollars and in euros will receive “New 2037 B Bonds” denominated in dollars or “New 2037 B Bonds” denominated in euros.
And secondly, Buenos Aires also
agreed to pay in cash the interest accrued until June 30 and currently in default
All creditors that enter the exchange will receive 100% of the interest accrued on their holdings, which will be paid 10% in cash and 90% in the New Bonds exchanged.
Let us remember that the Province of Buenos Aires today has an international debt of 7,200 million dollars, denominated in dollars and in euros.
The Province's proposal is
a step in the right direction
Another nine Argentine provinces have successfully restructured their debts in 2020 and 2021, all with similar structures (increase coupons, amortization payments) and with payback values as low as 59 cents (out of 100) and as high like 75 cents.
The estimated recovery value of the New Bonds is 59.8 cents.
This is a good starting point for negotiations that require both parties to give more space if they want to reach an agreement with the tough group of creditors.
Buenos Aires began trading in early 2020 with a Net Present Value (NPV) of 47, while creditors started at 75.
However, the next 15 days will show whether the Province's revised proposal finds sufficient
support from the majority of creditors
, forcing the AHG to accept current terms or become holdouts.
What happens now?
Quite possibly Governor Kicillof and his economic team will come out to publicly highlight the importance of the agreement with Golden Tree.
Kicillof, a known Wall Street foe, wants certain members of the AHG to separate from the group and accept the new offer.
The governor may also attract retail investors tired of waiting to accept the latest proposal and build support against funds that show some inflexibility.
The confidentiality agreements signed with de AHG expired on Friday, as did the 20th extension of the deadline to accept the exchange offer. The Province has already announced a new extension and bondholders now have until August 13 to join Golden Tree and accept the new and modified terms.
With a restructuring agreement, if it does occur,
the creditors would withdraw the lawsuit initiated in a New York court
that seeks to recover all the arrears and unpaid interests by the Buenos Aires government. The trustee and certain creditors filed a series of class action lawsuits against the Province to pressure Kicillof to sit down and negotiate. Today, three Argentine provinces remain in default: Buenos Aires, La Rioja and Tierra del Fuego. Two of them, Buenos Aires and La Rioja, have open causes in New York. Let us remember that Entre Ríos, which has already agreed with the creditors, was also
pressured to close an agreement
through a lawsuit filed in the North American city.
It was a positive week for the Province. It only remains to know if, in the month of August, the optimism that surrounds the restructuring of its debt, ends in a macro agreement or, otherwise, the litigation will continue. Kicillof
surprised us in recent years