Gustavo Bazzan
08/29/2021 19:09
Clarín.com
Economy
Updated 08/29/2021 19:09
The Province of Buenos Aires will formally announce this Monday that it comes out of default by closing with
high adherence
the exchange of bonds in dollars issued under foreign law.
The new offer prepared by the Axel Kicillof government,
substantially improved
compared to the original presented in April 2020, would have reached at least 90% acceptance.
This will allow the Province to meet the minimum thresholds required by the prospects of the bonds to be restructured and
avoid the risk of lawsuits in the courts of New York or London
.
As in the exchange of the National State, the acceptance will reach 100% because the reluctant will be imposed the weight of the majorities.
To reverse the innumerable rejections that the original offer reaped, the Province, as stated, had to agree to introduce significant improvements.
The Province of Buenos Aires was advised by BofA Securities and Citigroup Global Markets.
Market analysts who closely followed this process throughout this time pointed out the improvements granted.
The first is that
amortizations and interest accrued and not paid
are
recognized without deduction
from the moment payments were frozen, at the beginning of 2020. They are close to 760 million dollars.
10% of that figure is paid with dollars, and the remaining 90% with bonds.
They reduced the grace period by three years.
This
reduced the “duration” of the bonds,
that is, it reduced the number of years in which the cash flows of that bond were recovered.
This is possible because the bonds begin to amortize principal earlier several years before maturity.
The menu of bonds fell from 11 to 4
, all denominated in euros and dollars and maturing in the same year:
2037.
There are two dollar bonds, with different characteristics.
Both will start by paying an interest coupon of 2.50% that rises to 3.90% and 3.50% in 2022;
to 5.25% and 4.50% in 2023;
6.375% and 5.50% in 2024 and to 6.625% and 5.875% from 2025 to 2037. They will also pay amortizations twice a year, increasing, since March 2024.
For euro bonds, the interest coupons also
increase year after year
, although they are a little lower, and the partial repayments are on a similar scale to that of dollar bonds.
It is estimated that the Province will have to face annual payments of
240 million dollars for this restructuring.
In the market, they calculate that the new bonds of the Province of Buenos Aires will start with
a return rate of 17%
, similar to that of the
GD35
bonds
issued by the national government in the exchange closed in 2020. Some analysts see that rate a bit below. Although not much. It is difficult, but not impossible, for a provincial bond to yield less than a national one.
The consulting firm
Latam Advisors
drew this conclusion from the Buenos Aires offer: “The proposal of the Province of Buenos Aires is
a step in the right direction:
nine other Argentine provinces have successfully restructured their debts in 2020 and 2021, all with similar structures ( increase coupons, amortization payments) and with recall values as low as 59 cents and as high as 75 cents. The estimated salvage value of the new bonds with an exit yield of 14% is 59.8 cents, based on our own estimates. This is a good starting point for negotiations that need both parties to grant more space if an agreement is to be reached ”.
Fernando Menéndez,
provincial debt analyst at
Banco Mariva
, put the change in the valuation of the offer in numbers: "Measured at a conventional exit yield of 10%, in the first offer the present value of the bonds was worth 48 cents of dollar in average, whereas in the new offer the present value of the same is of 84 cents in average ".
A similar calculation was made by Juan José Vazquez, from Cohen's research area: "With an exit yield of 10%, the current offer with compensation for unpaid coupons goes in most cases from US $ 0.83 to US $ 0.88 ".
But he warns that as the real rate of return is going to be significantly higher, "the bonds could start trading in the range of $ 0.50 to $ 0.55."
The negotiation ended up on track when last month the Province reached an agreement with the investment fund
GoldenTree Asset Management LP
, the largest holder of provincial debt in default. Following that news, some other bondholders said they did not align with Golden Tree, but the differences appeared to be put aside.
It could also happen that the adhesion of the main creditor in some way
dragged smaller creditors
.
Anyway, the Province - which received the
advice of the Citi bank -
said publicly that it already has 90% of the adhesions, a sufficient percentage to meet the required majorities in bond issues.
That is: the potential percentage of bondholders who reject the offer
will not have enough votes to sue the Province in the courts of New York or London.
In other words, there would be no chance that the bonds that do not enter the exchange will pass into the hands of the so-called
“vulture funds”
, which do their business by taking the debtor to court.